Final answer:
An appraiser may use the sales comparison, cost, and income approaches to determine market value. Each approach has strengths and weaknesses.
Step-by-step explanation:
An appraiser may use several approaches to determine market value, including the sales comparison approach, the cost approach, and the income approach.
The sales comparison approach involves comparing the subject property to recently sold properties with similar characteristics. This approach relies on the principle of substitution, assuming that properties with similar attributes will have similar values.
The cost approach estimates the value of the subject property based on the cost to replace it. This approach is often used for unique or specialized properties that lack comparable sales data.
The income approach is used for income-generating properties and estimates value based on their income potential. This approach considers factors such as rental income, expenses, and capitalization rates.
The strengths of the sales comparison approach include its simplicity and reliance on market data. However, it may be limited if there is a lack of comparable sales or if the subject property has unique features. The cost approach provides a methodical approach to value estimation, but it may not accurately reflect market conditions. The income approach is useful for investment properties but relies heavily on accurate income and expense data.