Several types of appraisal methods are used to value a property, including the market approach and the income approach of appraisal systems. Another type of appraisal method is the cost type, where the cost to replace an existing property in a similar condition is determined. The market approach to appraisal methods uses the confirmed and verified sales of similar properties to determine the value of another property. In some areas, this is the only lawful method of appraising a property. The income approach method examines the potential for a property to earn income over the past 10-year period in order to value the property as compared to other similar area properties.
There are different appraisal methods used to determine the value of land and property, depending on the type of land that is being appraised. These methods are typically set in place by the law of the land in most areas. Typically, vacant land is the first type of property to be appraised since most land with a home or building on it also consists of an area of land. Thus, this method is used to set the value of the land that a building is sitting on before then, valuing the building and adding it to the value of the land.
In some areas of the world, the market approach of appraisal methods is the only lawful type of appraisal method allowed when a family dwelling type of property is involved. Comparing the values of recently sold homes and properties against the type of property that is being appraised, the actual selling value of the property is determined. It also helps determine the price a seller could expect to get for property on the market.
On agricultural lands, the income approach to appraisal methods is commonly used to determine the value of farm land for tax purposes. These types of appraisal methods compare the income potential that an individual piece of ground could potentially earn if planted similarly to comparable pieces of land in the area. Soil type, available water and drainage are all factored into these appraisal methods.
The cost approach examines the actual cost that it would take to replace the property. It takes the age and condition of any and all structures on the property into consideration. This type of appraisal system is commonly used on commercial and industrial properties, however, most commercial and industrial properties may be appraised by all types of appraisal methods in order to determine actual market value.