Approaches to Value

Approaches to value is the term used to describe the three (3) appraisal methodologies considered by appraisers in all appraisal assignments.  The three appraisal methods are; the sales approach, the income (capitalization) approach and the cost approach.

The sales approach considers real property sales deemed to be comparable by the appraiser.  A unit of comparison is selected and the appraiser considers the most pertinent factors affecting value and adjusts the comparable sales for differences that they have with the subject property.

The income (capitalization) approach considers the income generating capacity of the subject property by considering its actual income and / or its potential (economic) income.  Typical expenses are also considered in an income and expense analysis.  Direct capitalization and Yield Capitalization techniques are used in the income approach when applicable.  

The cost approach is the third and final method considered in the appraisal process.  The cost approach considers the costs of the improvement and the site, the entrepreneurial profit, depreciation from all sources and the value of the land.

Appraisers usually consider all three approaches to value, but at times one or two of the approaches are found to not be pertinent or appropriate for use and are not used in an analysis.

When more than one of the three approaches are used, the appraiser considers via a reconciliation which of the approaches should be given more emphasis or weight, and a final market value opinion is concluded.   

Contact us with your questions or concerns regarding the approaches to value or regarding your appraisal assignment in Nevada via e-mail at grigdon@cox.net or by phone at 1-702-568-6699. 

Commercial Real Estate Appraisals in the Las Vegas & Henderson, Nevada Area.