Value is not the same as price or cost. Market value is the most probable price a property should bring in a competitive, open market. Appraisers and agents estimate it using established methods.
Three approaches to value
- Sales comparison approach — compare recent sales of similar properties; primary method for residential.
- Cost approach — land value plus cost to rebuild minus depreciation; used for unique/new properties.
- Income approach — based on the income a property produces; used for investment properties.
Key concepts
- CMA
- Comparative Market Analysis — an agent's estimate of value from comparable sales (not a formal appraisal).
- Appraisal
- An unbiased opinion of value by a licensed appraiser.
- Depreciation
- Loss of value from physical deterioration, functional obsolescence, or external obsolescence.
- Highest and best use
- The legally permitted, physically possible, financially feasible use that produces the greatest value.