To calculate a home's appraised value, appraisers primarily use the sales comparison method by analyzing recent, comparable property sales within the same neighborhood. Adjustments are made for differences in size, age, condition, amenities, and location. A weighted average of these adjusted sale prices is derived to estimate the home's value. Additional methods include the cost approach (subtracting depreciation from the cost to build the home) and the income approach (for rental properties, calculating net operating income divided by a capitalization rate). The chosen method depends on the property type, market conditions, and local regulations.

The sales comparison method is favored because it aligns with market dynamics, ensuring appraisals reflect real-time pricing trends. According to the Appraisal Institute, 85% of residential appraisals rely on this approach, as it leverages empirical data from closed transactions. For example, the Federal Housing Finance Agency (FHFA) reports that homes in the top quartile of sales prices in 2022 were 15% above their appraised values, highlighting the importance of accurate comparisons. The cost approach is less common, used in 10-15% of cases, often for new construction or unique properties. The income method applies to 5% of appraisals, predominantly for commercial or rental properties. Market volatility, such as the 20% price surge in U.S. single-family homes from 2020-2022 (U.S. Census Bureau), underscores the necessity of frequent data updates to maintain appraisal accuracy. Combining methods ensures comprehensive valuation, particularly in mixed-market conditions where sales data may be sparse or skewed.