leftThree approaches to value

The most widely-used and accepted in residential practice is the sales comparison approach. This approach bases its opinion of value on what similar properties in the vicinity have sold for recently, with appropriate adjustments for market conditions, acreage, living area, amenities and so on. It is these adjustments where the expertise of the professional appraiser becomes necessary. A computer cannot tell you how much or little to adjust for a fireplace without knowing the neighborhood or even talking to Realtors and recent buyers in the area about how important that amenity is in that particular location.

Another approach is the cost approach. How much would a property cost to replace or rebuild minus any depreciation that has occurred since the property actually was built? The cost approach includes concepts like "economic life" and "effective age" that are mostly of use in developing a value for new construction properties, special use properties, special purpose properties or properties where subsequent structural improvements greatly impact value.

The third approach to value is the income approach.  Some properties generate income for their owners -- the most obvious examples being rental properties such as apartment buildings, non owner-occupied houses and duplexes and the like.  The rental income an owner might reasonably expect from a property is part of its value. For a purely owner-occupied residential property, this may not be applicable, but it can be important if the property is to be rented out or used otherwise to generate income, such as a storage facility, cell tower rental or office building.