The appraiser considers the strengths and weaknesses of each approach and assigns the most weight to the most appropriate approach for that property type. For residential properties, the sales comparison approach typically receives the greatest weight. For income-producing properties, the income approach usually receives the most weight. For new or special-purpose properties, the cost approach may be most reliable.
An appraiser valuing a single-family home obtains values of $320,000 from the sales comparison approach and $335,000 from the cost approach. The appraiser gives the most weight to sales comparison and concludes a final value of $322,000.
Reconciliation is never a simple mathematical average. The appraiser uses judgment to weight the approaches. Know which approach typically gets the most weight: sales comparison for residential, income for investment properties, and cost for new or special-purpose buildings.
Related Terms
Related Concepts
Depreciation is an accounting method of allocating the cost of an asset over its useful life, allowing investors to deduct a portion of the asset's cost each year.
The income approach estimates a property's value based on the income it generates by converting net operating income into a value estimate using a capitalization rate. It is the preferred method for income-producing properties.
Highest and best use is an appraisal concept that identifies the most profitable, legally permitted, physically possible, and financially feasible use of a property. It is the foundation of all property valuation.
The comparable sales approach estimates a property's value by comparing it to similar properties that have recently sold in the same market area. It is the most widely used and reliable approach for appraising residential properties.
The cost approach estimates a property's value by calculating the current cost to rebuild the improvements, subtracting accumulated depreciation, and adding the land value. It is most reliable for new construction and special-purpose properties.
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