The Three Appraisal Approaches for the New York Exam

How does sales comparison work?

Begin with relevant comparable sales and adjust their prices for meaningful differences from the subject. The adjustment is made to the comparable, not to the subject's asking price. If a comparable has a superior feature, subtract its supported contribution. If the comparable lacks a feature the subject has, add the supported contribution.

Imagine an otherwise comparable home sold for $640,000. It has an extra bathroom that contributes $20,000 in this hypothetical market. The subject lacks it. Adjust the comparable down:

$640,000 - $20,000 = $620,000

The $20,000 is supplied market evidence, not a statewide bathroom allowance. Reversing the adjustment rewards the comparable for an advantage it already has. Ignoring the difference treats unlike properties as equivalent.

Location, condition, size, sale date, financing and transaction conditions can also matter. A sale is not suitable simply because it is nearby. Review whether it offers credible evidence about the subject and the relevant market.

What does the cost approach measure?

In a simplified problem, add the value of the land to the cost of the improvements after appraisal depreciation. Replacement cost concerns a building with equivalent utility using current materials and standards. Reproduction cost concerns a duplicate. Do not use the words interchangeably if the question distinguishes them.

Suppose land value is $180,000, replacement cost is $420,000 and the stated depreciation is $70,000:

$180,000 + $420,000 - $70,000 = $530,000

Physical deterioration, functional obsolescence and external obsolescence explain different sources of loss. A worn roof concerns condition. A poor layout can concern function. An adverse influence outside the property can concern external obsolescence. Appraisal depreciation is not the tax deduction schedule used to recover an investment's cost.

The land is valued separately. Do not subtract building depreciation from the land merely because the building sits on it. For the tax distinction, IRS Publication 527, What Rental Property Can't Be Depreciated, explains why land is not depreciable for that purpose.

How does the income approach turn rent into value?

For a direct-capitalization exercise, value equals annual net operating income divided by the capitalization rate. The income period and rate must match. Use the stated definition of operating income, not the owner's cash after mortgage payments.

If annual NOI is $72,000 and the stated cap rate is 6%:

$72,000 / 0.06 = $1,200,000

A higher rate produces a lower value when NOI is held constant. That inverse relationship is a useful check. Multiplying NOI by 0.06 answers a different question and produces neither the indicated value nor the property's annual income.

A gross rent multiplier uses gross rent, not NOI. Match monthly rent to a monthly multiplier and annual rent to an annual multiplier. Do not apply a monthly multiplier to an annual figure simply because both numbers appear in the question.

Reading is the first step

Can you apply this rule when the facts change?

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New York example: which evidence fits?

An owner asks about the value of a small apartment building with reliable rent and expense records. Income evidence may be particularly useful, alongside other appropriate evidence. A new special-purpose building with few comparable sales may call for close attention to cost evidence. A house in an active market with relevant sales often has useful sales-comparison evidence.

These are reasons to select and weigh approaches, not rules that ban an approach for an entire property category. The analyst still considers the quality of the available evidence and the assignment.

Highest and best use must be legally permissible, physically possible, financially feasible and maximally productive. A profitable idea that violates zoning fails the legal test before its projected return can settle the issue.

Common traps to avoid

• Adjusting the subject instead of the comparable.
• Subtracting debt service when the exercise asks for property NOI.
• Confusing replacement cost, reproduction cost, price and value.
• Averaging weak and strong indications without considering reliability.
• Treating a salesperson's pricing analysis as a credentialed appraisal.

Read the valuation lessons, then work valuation topic questions and the math tools. Explain the direction of the result before calculating.

Frequently asked questions

Do you add or subtract a superior comparable's feature?

Subtract its supported contribution from the comparable's price to bring it toward the subject's characteristics.

Is a cap rate the same as a mortgage interest rate?

No. A capitalization rate converts property income into value. A mortgage rate prices borrowing. They serve different purposes.

Must the three approaches be averaged?

No. Reconciliation weighs the evidence and the suitability of the approaches. An automatic arithmetic average can give weak evidence too much influence.

Official source map

• DOS 77-hour curriculum: Subject 8, valuation methods, depreciation and pricing concepts.
• DOS appraiser information: the separate appraiser credential and training context.
• IRS Publication 527: the tax-depreciation and land distinction, not authority for an appraisal value.

Sources and verification notes

All property figures are invented exercise assumptions, not market data or a valuation recommendation. The guide teaches introductory exam methods rather than a complete professional appraisal process.