The three main types of appraisals, particularly in real estate and asset valuation, are:
- Sales Comparison Approach (Market Approach)
This method compares the property or asset being appraised to similar properties or assets that have recently sold in the same market. Adjustments are made for any differences between the subject property and the comparables to estimate value. This approach is widely used for residential real estate. - Cost Approach
The cost approach estimates the value by summing the land value and the depreciated cost to construct (or replace) the property. It’s most applicable to new or unique properties, where comparable properties are not available. - Income Approach (Income Capitalization Approach)
This method determines the value based on the income the property is expected to generate. It is most commonly used for commercial and investment properties, such as apartment buildings or office spaces, by evaluating rental income potential and applying capitalization rates.
Each approach is applied based on the type of asset and purpose of the appraisal, and sometimes more than one approach is used for a comprehensive valuation.
