Question

List and briefly explain the three basic appraisal methods

Answer 1

The three appraisal methods are as follows :

1. The sales comparison approach

2. The income approach

3. The cost approach

The sales comparison approach : This method is a real estate appraisal method that compares a property to other property with similar characteristics that have recently sold .The real estate agents and appraisers may use this method when evaluating properties to sell.This method helps real estate professionals and buyers to determine and compare the current market value. This method is based upon the principles of supply , demand and substitution .

The income approach : The Income approach is a method used by appraises that estimate the market value of the property based on the income of the property . This method is an application of discounted cash flow analysis in finance . In income approach of business valuation the business is valued at present value of its future earnings or cash flows Income approach has two main variants.Capitalization of earnings and discounted cash flows approach

The cost approach : The cost approach is another method an appraiser may use to develop an opinion of value .This approach is a valuable approach to use when appraising newer homes that might have no depreciation In cost approach appraisal the market price for the property is equal to the cost of land plus construction cost less depreciation .The two main types of cost approach appraisals are reproduction method and replacement method .