There are three traditional approaches normally used by appraisers in the estimation of market value. These three approaches provide data from three market perspectives. These three techniques are the Cost Approach, the Sales Comparison Approach and the Income Approach.

COST APPROACH 

The Cost Approach is the sum of the land value and the cost new of the improvements less accrued depreciation. The cost approach is based on the premise that an informed, rational investor/purchaser would pay no more for an existing property than it would cost him to reproduce a substitute property with the same utility without undue delay.

INCOME APPROACH 

The Income Approach is based on the premise that a prudent investor would pay no more for the subject property than he would for another investment with similar risk and return characteristics. Since the value of an investment can be considered equal to the present worth of anticipated future benefits in the form of dollar income or amenities, this approach estimates the present value of the net income that the property is capable of producing. This amount is capitalized at a rate which should reflect risk to the investor and the amount of income necessary to support debt service or the mortgage requirement.

SALES COMPARISON APPROACH 

The Sales Comparison Approach is the process for comparing prices paid for properties having a satisfactory degree of similarity to the subject property adjusted for differences such as time,  location and physical characteristics. This approach is based upon the principle of substitution, which  implies that a prudent purchaser will not pay more to buy a property than it would cost him to buy a comparable substitute property in a similar location.

An appraisal is prepared in conformance with and their use is subject to the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation, regulations issued by the federal banking regulatory agencies pursuant to Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), and the requirements of the Code of Professional Ethics and Uniform Standards of Professional Appraisal Practice (USPAPP) of the Appraisal Institute, and the FDIC's Appraisal Standards.