The three approaches to value are the sales comparison approach, which values a home from adjusted sales of similar homes; the cost approach, which adds the land value to what it would cost to build the improvements new, less depreciation; and the income approach, which converts the rent a property could earn into an indication of value. A Claremont home appraisal uses whichever of the three are applicable and necessary for the assignment, says why any approach was left out, and reconciles the results into one opinion. On most single-family houses the sales comparison approach carries the weight.
Where the rule comes from
The Interagency Appraisal and Evaluation Guidelines, the federal banking agencies' guidance on appraisals for lenders, put it in one passage: as required by the Uniform Standards of Professional Appraisal Practice (USPAP), the national standards for appraisal, "the appraisal must include any approach to value (that is, the cost, income, and sales comparison approaches) that is applicable and necessary to the assignment." The same passage says the appraiser "should disclose the rationale for the omission of a valuation approach" and "must analyze and reconcile the information from the approaches to arrive at the estimated market value."
So the three approaches are not three kinds of appraisal. They are three lines of evidence, and the scope of work, the type and extent of research and analysis, decides which ones the assignment needs.
The three side by side
ApproachWhat it measuresWhere it tends to apply on a homeIts limit
Sales comparison
What buyers paid for similar homes, adjusted for differences
Almost every owner-occupied house with enough comparable sales
Only as good as the comparables and the support for each adjustment
Cost
Land value plus the cost to build the improvements new, less depreciation
New or proposed construction, unusual or custom improvements, a check on the sales analysis
Cost is not the same as what buyers pay, and depreciation on an older house is hard to measure
Income
The rent the property could earn, converted to value
Two- to four-unit buildings, and one-unit areas with a substantial rental market
Weak where homes are mostly owner-occupied and rental data is thin
The sales comparison approach
The sales comparison approach develops value from the prices of comparable sales, closed sales of homes a buyer of the subject would have weighed as alternatives, each adjusted for the differences buyers pay for. An adjustment is the amount a comparable's price is changed for one such difference, such as lot size, view or condition. For loans sold to Fannie Mae, at least three closed comparables are required. In Claremont the approach is shaped by the pockets: a pre-1940 house near the Village and the Colleges is compared with houses of its era, a postwar ranch with houses from the same tracts, and a Claraboya or Padua Hills home through a wider search for similar view and grade.
This article does not repeat the grid. The sales comparison approach on a Claremont house, explained with a blank grid walks through it line by line, and how comparable sales are chosen, and which ones a reviewer throws out covers selection and rejection.
The cost approach
The cost approach estimates the value of the land as if vacant, adds the cost to build the existing improvements new, and subtracts depreciation, the loss in value from physical wear, outdated design or outside conditions. It answers a different question from the sales: not what buyers paid, but what it would take to reproduce the house.
Fannie Mae's Selling Guide topic B4-1.3-10 says it does not require the cost approach except for manufactured homes, that it may be appropriate for new or proposed construction, and that it can be used to support the sales comparison approach. When the appraiser decides the approach is needed for credible results, "the cost approach must be provided." The same topic says appraisals that rely solely on the cost approach "are not acceptable."
In Claremont terms, the approach tends to come up beside the sales on newer infill such as the Village expansion west of Indian Hill, on a newly built ADU or addition, and on one-off custom homes in the foothills where close sales are few. On a long-held pre-1940 house, estimating depreciation is the weak point, and the sales usually explain more. New construction appraisal in Upland shows how builder sales and resales sit with the cost evidence, and the new construction and ADU appraisal page describes that assignment type.
The income approach
The income approach values a property by the income it could produce, using market rent, the rent a property would command in the open market, supported by comparable rentals and sales. Fannie Mae's B4-1.3-10 says the income approach "is required in the valuation of two-unit to four-unit properties." For one-unit homes it may be appropriate in neighborhoods with a substantial rental market, and may not be appropriate in areas that consist mostly of owner-occupied properties, where adequate rental data may not exist. When it is used, the report must include the supporting comparable rental and sales data, and an appraisal that relies solely on the income approach is not acceptable.
Most Claremont single-family houses sit in owner-occupied pockets, so the income approach is usually not the one given weight there. It matters for duplexes, triplexes and fourplexes, which the multi-family 2-4 unit appraisal page describes, and for rent questions covered by the market rent analysis page.
How the approaches become one opinion
Reconciliation is the step where the appraiser weighs each approach used, and the evidence behind it, into a single opinion of value. Fannie Mae's reconciliation topic, B4-1.3-11, requires the appraiser to reconcile "the reasonableness and reliability of each applicable approach," says reconciliation must never be an averaging technique except a weighted average with proper explanation, requires the report to name the approach or approaches given the most weight, and says the final value must fall within the range the approaches indicate.
A report that develops only the sales comparison approach is not incomplete for that reason alone, as long as it explains why the cost and income approaches were not necessary. A report that develops all three and simply averages them is a problem.
Does the new appraisal form change this?
For loans sold to Fannie Mae and Freddie Mac, the redesigned Uniform Residential Appraisal Report replaces the older form family. Freddie Mac's FAQ says UAD 3.6, the data standard behind it, "will be mandatory for all new appraisal reports submitted to UCDP on or after November 2, 2026." The form's layout changes; the obligation to use the applicable approaches and reconcile them does not. The new appraisal format in 2026 covers the redesigned report.
Where this fits in the whole appraisal
The approaches come after the groundwork: setting the intended use, what the report will be used for, and the effective date, the date the opinion of value applies to; inspecting and measuring the house; and studying the market. How a home appraisal works in Claremont lays out the sequence from scope call to delivered report, and what real estate comps are explains the evidence the sales comparison approach rests on. The full topic is on the comparable sales and comps hub.
Next step
How an assignment works explains what happens from first call to delivered report, and the Claremont area page describes the pockets. To order a report, request an appraisal or call (909) 324-6122.
Sources
- Interagency Appraisal and Evaluation Guidelines, 75 FR 77450 (December 10, 2010), govinfo, accessed November 6, 2026
- Fannie Mae Selling Guide B4-1.3-08, Comparable Sales, accessed November 6, 2026
- Fannie Mae Selling Guide B4-1.3-10, Cost and Income Approach to Value, accessed November 6, 2026
- Fannie Mae Selling Guide B4-1.3-11, Valuation Analysis and Reconciliation, accessed November 6, 2026
- Freddie Mac, UAD and Forms Redesign FAQs, accessed November 6, 2026
- California Bureau of Real Estate Appraisers, license lookup for Gordon Hall, accessed November 6, 2026
Gordon Hall, California Certified Residential Real Estate Appraiser, BREA No. AR003877 (lookup: https://www2.brea.ca.gov/breasearch/faces/party/view.xhtml?id=23601). Reports are prepared in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP). Nothing here is legal or tax advice; admissibility is always the court's decision.
Frequently asked questions
What are the three approaches to value in a home appraisal?
The sales comparison approach values a home from adjusted sales of similar homes. The cost approach adds land value to the cost of building the improvements new, less depreciation. The income approach converts the rent a property could earn into an indication of value. An appraisal uses the ones applicable and necessary to the assignment.
Does every home appraisal use all three approaches?
No. Federal interagency guidance says an appraisal must include any approach that is applicable and necessary to the assignment, and the appraiser should explain why an approach was omitted. On most owner-occupied single-family houses the sales comparison approach carries the weight.
When is the income approach required?
For loans sold to Fannie Mae, its Selling Guide says the income approach is required for two- to four-unit properties. For one-unit homes it may be appropriate where there is a substantial rental market, and may not be where homes are mostly owner-occupied.
Are the three approaches averaged together?
No. Fannie Mae's Selling Guide says reconciliation must never be an averaging technique, except a weighted average with proper explanation. The report names the approach given the most weight, and the final value must fall within the range the approaches indicate.
