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An appraisal is an estimate of the value of the property. A lender requires a buyer to have a property appraised to make sure its value supports the loan amount. There are three approaches to determining an estimate of value. The first is the market data approach which is comparing similar properties that have sold recently. The second is the cost approach which is to add together the cost of the individual components that make up the property being appraised. The third approach is to consider only the amount of net income that the property can reasonably be expected to produce for its owner, plus any anticipated price increase or decrease. This is the income approach.
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