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Mortgage Library
Appraisal Methods
An appraisal is an opinion of value or the act or process of estimating value. This
opinion or estimate is derived by using three common approaches, all derived
from the market. They are:
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Cost Approach
to value is what it would cost to replace or reproduce the improvements as of
the date of the appraisal, less the Physical Deterioration, the Functional
Obsolescence and the Economic Obsolescence. The remainder is added to the Land
Value.
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Comparison Approach
to value makes use of other "bench mark" properties of similar size, quality
and location that have been recently sold. A comparison is made to the subject
property.
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Income Approach
to value is of primary importance in ascertaining the value of income producing
properties and has little weight in residential type properties. This approach
provides an objective estimate of what a prudent investor would pay based upon
the net income the property produces.
Then, after thorough analysis of all general and specific data gathered from the market, a final estimate or opinion of value is correlated.
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