The appraisal process is a systematic analysis of the factors that bear upon the value of the property. It is a procedure by which the problem is defined, the work necessary to solve the problem is planned, and the data involved is acquired, classified, analyzed and interpreted into an estimate of value. This process consists of three approaches to value, all of which must be considered, as one or more may be applicable to the subject. The three appraisal approaches are known as the Sales Comparison Approach, Cost Approach, and the Income Approach.
The most widely-used and accepted in all types of properties is the sales comparison approach. This approach bases its opinion of value on what similar properties in the vicinity have sold for recently, with appropriate adjustments for time, acreage/lot size, living area, amenities and so on. It is these adjustments where the expertise of the professional appraiser becomes necessary -- no computer can tell you how much or little to mark up for a component of the property without knowing the local or regional market area or even talking to Brokers/Realtors, Builders/Contractors, Manufacturers/Dealers, and Buyers/Sellers how important that amenity is in that particular location.
Another approach is the cost approach. How much would a property cost to replace, that is, rebuild, minus "accrued depreciation," that is, depreciation that has occurred since the property actually was built? The cost approach includes concepts like "economic life" and "effective age" that are mostly of use in determining the value of special use properties, special purpose properties or properties where subsequent structural improvements greatly impact value.
The third approach to value is called the income approach. Some properties generate income for their owners -- the most obvious examples being rental properties such as apartment buildings, non owner-occupied houses and duplexes and the like. The rental income an owner might reasonably expect from a property is part of its value. For a purely owner-occupied residential property, this may not be applicable, but it can be important if the property is to be rented out or used otherwise to generate income, such as a storage facility, cell tower rental and office building.