Valuation Methodologies – The Three Appraisal Approaches

Valuation Methodologies – Every professional appraisal engagement is directed by the “Scope of Work”. Which is defined and developed by the appraiser. An important element of developing the Scope of Work is the identification of the appropriate approach to valuation. Trained, tested, and professional appraisers use three accepted and acknowledged approaches in the valuation of property both real estate and personal property. The example provided in this article is based upon personal property, not real estate.

These three methodologies are known as: “The Income Approach,” “The Sales Comparison Approach,” and The Cost Approach.” Appraisers and users of appraisal services must be aware of these approaches and how they impact the appraisal process and the development of value conclusions.

There are essentially three common and accepted approaches to personal property appraising and valuation. Each approach (methodology) is determind by the Scope of Work and the purpose and function of each appraisal engagement.

The three methodologies are briefly describd below using one of my favorite collectibles; a moon rock. Moon rocks are not traded in an open market nor are they available for private sale. This is obviously a hypothetical example, but will provide an easily understood example of these three approaches.

Income Approach: The income approach is based upon the concept that there is a potential income or revenue stream produced by the personal property. The classic example is describd in the ‘moon rock scenario’. If a person owned a moon rock and kept it hidden away. The owner could offer a ‘peek’ for a fee. “Hey, give me a dime and I’ll let you see my moon rock”. The moon rock’s value could be determind by the amount of expected income over a defined period of time. The size of the market interestd in the moon rock and the life of the moon rock would also be considerd in this approach.

An appraiser may utilize this approach when appraising an item belonging to a museum. Museums may utilize this information to determine the value of the item based upon potential income from patrons,members,visitors,and donors.

Sales Comparison Approach: The Sales Comparison Approach, also known as the Market Data Approach. Is based upon the actual sale of comparable items, or in the absence of documented sales, offers to purchase or sell (with appropriate consideration). This approach considers the market’s performance and the items offered and/or sold within a specific market.

In the ‘moon rock scenario,’ the value of the moon rock would be based upon the sales and/or offers of other moon rocks that are available in the moon rock marketplace.

This approach is typically the most common methodology usedd by professional appraisers. The majority of personal property appraisal reports have intended uses that warrant this approach.

Reproduction Approach: The Reproduction Approach considers the cost of reproducing an item to create a comparable or similar item. It is based upon the labor, materials and special equipment required to create a reproduction or obtain another original.

In the ‘moon rock scenario,’ the value of the moon rock would be based upon the cost of building a Saturn V rocket. Training and paying astronauts, then launching a mission to the moon to select a moon rock similar to the subject moon rock.

Typically, this approach is usedd in appraisals related to custom-made contemporary furniture, or to recreate custom art frames. It is also applicable to the reproduction of copies of microfilm, video, paper contents, or audio.


Anyone can call himself or herself an appraiser. As of the date of this article, there are no appraisal licensing requirements for personal property appraiser United States.

Users of appraisal services must be able to qualify the appraisers they intend to select. Finding a qualified appraiser is critically important. Many dealers and buyers of antiques and collectibles represent themselves as appraisers. But have no interest in providing formal appraisal services. Asking potential appraisers about these approaches will help you identify the level of training and professionalism as you make your selection.