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Simple English definitions for legal terms
appraisal trinity
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A quick definition of appraisal trinity:
Appraisal Trinity: The three main ways to figure out how much a piece of property is worth are called the appraisal trinity. These methods are the market approach, the cost approach, and the income approach. The market approach looks at how much similar properties in the area have sold for. The cost approach considers how much it would cost to rebuild the property from scratch. The income approach looks at how much money the property could make if it were rented out.
A more thorough explanation:
The appraisal trinity refers to the three most commonly used methods for appraising real property. These methods are:
- Market Approach: This method involves comparing the property being appraised to similar properties that have recently sold in the same area. The appraiser will take into account factors such as location, size, and condition to determine the value of the property.
- Cost Approach: This method involves determining the cost of rebuilding the property from scratch, taking into account factors such as materials, labor, and depreciation. The appraiser will then adjust this value based on the age and condition of the property.
- Income Approach: This method is used primarily for commercial properties and involves estimating the income that the property is capable of generating. The appraiser will take into account factors such as rental rates, vacancy rates, and operating expenses to determine the value of the property.
For example, if an appraiser is valuing a residential property using the market approach, they will look at recent sales of similar homes in the same neighborhood to determine the value of the property. If they are using the cost approach, they will estimate the cost of rebuilding the home from scratch and adjust this value based on the age and condition of the property. If they are using the income approach, they will estimate the rental income that the property is capable of generating and use this to determine the value of the property.