Valuation Methodologies

Methodologies of an Appraisal

Appraisal Methodologies

Please utilize this downloadable document of common appraisal methodologies to your advantage. This information should help guide you through the appraisal process with ease.

The value of a piece of equipment can be found by using a variety of appraisal methodologies, including cost approach, sales comparison approach and income approach.

Cost Approach:

This approach is based on the proposition that the informed purchaser would pay no more for a property than the cost of producing a substitute property with the same utility as the subject property. It considers that the maximum value of a property to a knowledgeable buyer would be the amount currently required to construct or purchase a new asset of equal utility. When the subject asset is not new, the current cost new for the subject must be adjusted for all forms of depreciation and obsolescence as of the date of the appraisal.

Sales Comparison Approach:

This approach involves the collection of market data pertaining to the subject assets being appraised. This approach is also known as the “Sales Comparison Approach.” The primary intent of the market approach is to determine the desirability of the assets through recent sales or offerings of similar assets currently on the market in order to arrive at an indication of the most probable selling price for the assets being appraised. If the comparable sales are not exactly similar to the asset being appraised, adjustments must be made to bring them as closely in line as possible with the subject property.

Income Approach:

This approach considers value in relation to the present worth of future benefits derived from ownership, and is usually measured through the capitalization of a specific level of income.

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