Sales, Cost, and Income Approaches to Value: A Homeowner Primer
Plain-English explanation of the three approaches Canadian appraisers use, when each applies, and how they are reconciled into a final value.
Canadian residential appraisers work with three recognize…
Canadian residential appraisers work with three recognized approaches to value: sales comparison, cost, and income. Most single-family reports rely primarily on sales comparison, with the other two used as supporting checks.
Sales comparison analyzes recent arm's-length sales of si…
Sales comparison analyzes recent arm's-length sales of similar properties, adjusts for meaningful differences, and reconciles a value indication. It is the most defensible approach where a healthy comparable pool exists.
The cost approach adds depreciated replacement cost of im…
The cost approach adds depreciated replacement cost of improvements to underlying land value. It is a strong check on new construction, luxury custom builds, and unique properties where comparable sales are thin.
The income approach capitalizes market rent into a value
The income approach capitalizes market rent into a value indication. It is common for plexes, purpose-built rental buildings, and legal secondary-suite scenarios.
Reconciliation is the appraiser's judgment about which ap…
Reconciliation is the appraiser's judgment about which approach carries the most weight for this property, this purpose, and this evidence — it is not a simple average.
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