What are the three approaches to value used by appraisers?

• A. (1) Market Approach, (2) Replacement Approach, (3) Investment Approach
• B. (1) Sales Comparison Approach, (2) Cost Approach, (3) Income Approach)
• C. (1) Replacement cost method, (2) Sales approach, (3) Income capitalization)
• D. (1) Sales Comparison Approach, (2) Cost Approach, (3) Cash Flow Approach)

Answer: (B)

The three approaches to value used by appraisers are the Sales Comparison Approach, the Cost Approach, and the Income Approach.

The Sales Comparison Approach relies on recent sales of comparable properties and adjusts for differences to estimate what the subject property would likely command in the market today. This method reflects market behavior and how buyers and sellers price similar properties.

The Cost Approach estimates value by calculating how much it would cost to replace the property with a similar one (replacement or reproduction) and then subtracting depreciation, while adding the land value. It’s most useful when market data are limited or for special-use properties where replacement cost is a good indicator of value.

The Income Approach determines value based on the property’s ability to generate income. It converts expected net income into value through capitalization (or discounted cash flow) techniques, making it particularly relevant for investment properties.

These three together provide the essential viewpoints: market evidence, replacement cost, and income-producing potential. Alternatives like an “Investment” or “Cash Flow” approach aren’t standard separate approaches in appraisal practice, and terms like “Replacement Approach” don’t correspond to the recognized trio.