Property Valuation Methods Explained: Comparative, Income, and Cost Approaches
Understand the three main property valuation methods used by appraisers and investors to determine fair market value.
Why Valuation Matters
Accurate property valuation is fundamental to successful real estate transactions, whether buying, selling, or refinancing.
Comparative Market Analysis (CMA)
The CMA examines recent sales of similar properties. Adjustments are made for differences in size, condition, location, and features. Most common for residential properties.
Income Approach
Used for investment properties, this method calculates value based on potential income. Net Operating Income divided by cap rate determines value.
Cost Approach
Estimates land value plus construction cost of improvements, minus depreciation. Common for unique properties or insurance purposes.
Choosing the Right Method
Residential homes typically use CMA, investment properties use income approach, while unique properties may require cost approach.
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