There are three primary approaches to the valuation of real property:
- Market (Sales)
- Cost (Cost less depreciation)
- Income (Revenue and Expense)
Typically, residential properties are valued based on market – current sales transactions. The cost approach can be utilized for unique circumstances, the valuation of certain improvements such as additional garages, outbuildings, or other structures. Appraisers apply replacement cost new less depreciation to determine a value.
The income approach is not necessarily applied to residential properties unless they are used as rental property, or a condominium or cooperative ownership is established.
The market approach is usually weighed the most when valuing residential properties.
Commercial properties utilize the three approaches to value however in most circumstances appraisers rely on the income approach since commercial property buyers buy property based on the ability to turn a profit on the investment.
Land valuation relies mostly on the market/sales approach, however agricultural land can be valued using an income-based valuation depending on the use of the land.
In New York State, municipalities must apply the same level of assessment to all property types. Meaning if a municipality that assesses property at full market value (100%) all property types must be valued at 100%.
