When are the market, income and cost approaches used?

Valuation methods are selected according to the asset, valuation purpose, basis of value and available evidence. More than one approach may be appropriate.

Market approach

Relevant comparable transactions are analysed and adjusted for differences such as location, area, age and specification. This can suit land and residential properties in markets with reliable comparable evidence.

Income approach

For income-producing assets, value may be assessed through capitalising net operating income or discounting future cash flows. Lease terms, occupancy and market capitalisation or discount rates are relevant.

Cost approach

Where cost evidence is appropriate, land value is combined with the cost of replacing improvements, allowing for depreciation and obsolescence. It may be relevant to some special-purpose or newly constructed assets.

How is the approach selected?

• Are reliable comparable market data available?
• Does the asset's value depend on income or cash flows?
• Is construction or replacement cost relevant to the analysis?
• What are the purpose and basis of value?

Property type alone does not determine the approach. The valuer documents the selection, analysis and supporting evidence. Explore our methodology.