THREE APPROACHES TO VALUE
There are three ways to determine the value of anything, and each plays a part in property appraisal.

1. Sales Comparison Approach. This is the most widely-used and accepted in residential practice.  This approach bases its opinion of value on what similar properties in the vicinity have sold for recently, with appropriate adjustments for time, acreage, living area, amenities and so on.

2. Cost Approach. How much would a property cost to replace? That is, rebuild, minus "accrued depreciation," that is, depreciation that has occurred since the property was actually built.  The cost approach includes concepts like "economic life" and "effective age" that are mostly of use in determining the value of special use properties, special purpose properties or properties where subsequent structural improvements greatly impact value.

3. Income Approach. Some properties generate income for their owners -- the most obvious examples being rental properties such as apartment buildings, non-owner-occupied houses and duplexes and the like.  The rental income an owner might reasonably expect from a property is part of its value.  For a purely owner-occupied residential property, this may not be applicable, but it can be important if the property is to be rented out or used otherwise to generate income, such as a storage facility, cell tower rental and office building.