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Appraisal Trinity: The Three Essential Methods of Property Valuation
Definition & Meaning
The term "appraisal trinity" refers to three primary methods used to evaluate the value of real property. These methods are:
Market Approach: This method determines value based on recent sales of comparable properties.
Cost Approach: This approach assesses the current cost to reproduce or replace the property, minus depreciation.
Income Approach: This method evaluates the property based on its potential to generate income, often calculated through capitalization of net income.
Table of content
Legal Use & context
The appraisal trinity is commonly used in legal contexts involving real estate, particularly in condemnation actions, where property is taken for public use. Appraisers may employ one or more of these approaches to establish fair market value in various legal proceedings, including:
Eminent domain cases
Property tax assessments
Real estate litigation
Users can manage some of these processes themselves using legal templates from US Legal Forms, which provide guidance on property valuation and associated legal actions.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A city is acquiring a residential property for a new park. An appraiser uses the market approach to determine the fair market value based on recent sales of similar homes in the area.
Example 2: A commercial property owner wants to sell their building. An appraiser assesses the property's income potential by analyzing rental income and expenses, applying the income approach to establish a selling price.
Relevant laws & statutes
The appraisal trinity is recognized in various legal frameworks, including:
California Evidence Code §§ 815-820, which codify the use of these appraisal methods in condemnation proceedings.
State-by-state differences
Examples of state differences (not exhaustive):
State
Notes
California
Utilizes the appraisal trinity in eminent domain cases as per state law.
New York
Also recognizes these methods but may have specific local regulations affecting their application.
Texas
Similar approaches are used, but the emphasis may vary based on local market conditions.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Description
Market Approach
Focuses solely on comparable sales to determine property value.
Cost Approach
Calculates value based on reproduction costs and depreciation, without market comparisons.
Income Approach
Determines value based on potential income generation, rather than market trends or costs.
Common misunderstandings
What to do if this term applies to you
If you find yourself needing an appraisal for a property, consider the following steps:
Determine which appraisal approach is most suitable for your situation.
Consult a qualified appraiser to ensure accurate valuation.
Explore US Legal Forms for templates that can assist you in property valuation or related legal processes.
If the situation is complex, seek professional legal advice to navigate potential legal implications.
Find the legal form that fits your case
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