Three approaches to value

There are three ways to determine the value of anything, and each plays a part in property appraisal.

Sales Comparison Approach: The most widely-used and accepted in residential practice is the sales comparison approach. This approach bases its opinion of value on what similar properties in the vicinity have sold for recently, with appropriate adjustments for time, acreage, living area, amenities, and so on. 

Cost Approach: This method determines how much it would cost to replace, that is, rebuild, the property, minus "accrued depreciation," that is, depreciation that has occurred since the property actually was built.

Income Approach: The third approach to value is called the income approach.  Some properties generate income for their owners, the most obvious examples being rental properties, such as apartment buildings, non owner-occupied houses, duplexes, and the like. The rental income an owner might reasonably expect from a property is part of its value.