Topic #6: Overview of Real Estate Appraisal

There are several ways to value a property through appraisal. they include the: sales comparison approach, cost approach, and income approach. The sales comparison approach establishes a market value of a parcel of land by comparing it to the prices that the market has paid for similar properties in the past. This approach is very common in the residential real estate market. The cost approach values a property by figuring the current cost of reproducing the property and subtracting out depreciation. Depreciation includes physical deterioration, functional obsolescence, and external obsolescence. Functional obsolescence is the inability of the building to provide the same utility or services as the new building where external obsolescence is the loss of value because of external forces and change such as an overpass being built next to a shopping center.