Valuation and Appraisal

The sales comparison approach values property by adjusting recent sales of comparable properties and is most reliable for single-family homes.

The cost approach estimates value as land value plus the depreciated cost of improvements and suits new or special-purpose properties.

The income approach values investment property by dividing net operating income by the capitalization rate; a gross rent multiplier relates price to gross income.

The principle of substitution holds a buyer will pay no more than the cost of an equally desirable substitute, underlying the sales comparison approach.

The principle of anticipation holds value reflects the present worth of expected future benefits, underlying the income approach.

Conformity supports value through neighborhood uniformity; progression raises a lesser property's value near better ones, and regression lowers a superior property's value near lesser ones.

Highest and best use is the reasonably probable, legal, physically possible, and financially feasible use that yields the highest value.

Property is valued according to its highest and best use, not necessarily its current use.

Assemblage combines adjacent parcels, and the resulting increase in value is called plottage.

Physical deterioration is loss in value from ordinary wear, tear, and age of the improvements.

Functional obsolescence is loss from outdated or undesirable features within the property, such as a poor floor plan.

Economic or external obsolescence is loss from factors outside the property, such as a nearby nuisance, and is generally incurable.

Market value is the most probable price a property should bring in a competitive, open market with a willing buyer and seller and adequate exposure.

Assessed value is set by the county assessor for taxation; under Proposition 13 it is generally based on acquisition value with limited annual increases.

A comparative market analysis is a licensee's informal pricing tool based on comparable listings and is not a certified appraisal.