There are three methods typically used by appraisers to value real property. These are the Cost Approach, Sales Comparison Approach, and the Income Approach. Not every method is applicable to every property.

The cost approach is based on the principal of substitution; that a rational, informed purchaser would pay no more than the cost of building an acceptable substitute with similar utility after accounting for land and any depreciation or deterioration.

The sales comparison approach is also based upon the principal of substitution; it uses sales of similar properties as a basis for comparison. It is rooted in the principal that the arms length, negotiated sale price of similar properties, best indicates the market value of the subject property. Adjustments must be made for differences in attributes, such as location, size, quality, condition, special features.

The income approach is based on the anticipated income stream generated by the use of the property and the desired return on investment. In this approach, the income (net or gross) a property will generate is estimated. Capitalization rates (rates of return) or multipliers are used to predict value. This approach is used primarily for commercial and rental property.