An appraiser is a professional who has the knowledge and expertise necessary to estimate the value of real estate. They typically work for individual clients and focus on evaluating one piece of real estate at a time, spending much of their time researching and writing reports.

The most critical step in any appraisal is for the appraiser to identify the Highest and Best Use of a given property. This will form the basis for all three valuation approaches or techniques that follow.

Highest and Best Use
Highest and Best Use is that use that will result in the highest value of a property. It will be that use that is physically possible, financially feasible, and legally permitted. For example, if a vacant plot of land is situated along a busy street, is large enough to accomodate a department store, is zoned for retail commercial use, and a new department store could be expected to be successful there, then the highest and best use of that site would be as a department store site. By contrast, suppose that same site has a home on it. If it can be shown that the value of that site is actually greater as a residence than as a site for a department store, then the highest and best use would be as a residence. Highest and best use is all about whatever use gives the property the most value in the marketplace. Once the highest and best use has been identified, the appraiser begins to apply the three basic valuation techniques.

The Cost Approach
The Cost Approach: a set of procedures through which a value indication is derived by estimating the current cost to construct a reproduction of the existing structure, deducting the accrued depreciation and adding the estimated land value. The principle of substitution is the basis of the cost approach, in that no rational person will pay more for a property than the amount for which he can obtain, by purchase of a site and construction of a building, with undue delay, a property of equal desirability and utility. Appraisers typically make use of published cost figures when calculating the cost to construct a building. These sources of data are available online and in printed form. Land value is determined by a comparison of the subject site with other similar sites that have recently sold.

The Income Approach
The Income Approach is typically used in appraising income-producing properties. It is a technique whereby the gross or net income of an income producing property is capitalized at a rate which provides a return of interest on the money invested and a recapture of the capital investment in the improvement over a reasonable term of the investment. Capitalization is accomplished for simple residential properties such as rented homes or duplexes by the use of a Gross Rent Multiplier. This involves multiplying the total monthly rent of a property times a number (GRM) found by dividing the sale prices of similar properties by their monthly rents.

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