Three approaches to value
There are three ways to determine the value of real estate, and each plays a part in property appraisal.

Sales Comparison - The most widely-used and accepted in residential practice is the sales comparison approach.  This approach bases its opinion of value on what similar properties in the vicinity have sold for recently, with appropriate adjustments for time, acreage, living area, amenities and so on.  It is these adjustments where the expertise of the professional appraiser becomes necessary -- no computer can tell you how much or little to mark up for a fireplace without knowing the neighborhood or even talking to Realtors and recent buyers in the area about how important that amenity is in that particular location.

Cost Approach - Another approach is called the cost approach. How much would it cost to replace your home if it was destroyed? Of course the replacement cost of your home is not equal to its value. Homes depreciate through neglected maintenance and just over the process of time. Just like a new car does the minute you drive it off the dealer’s lot. The cost approach incorporates the value of the land it sits on, plus the cost to replace the dwellings, minus the amount of structural depreciation. Cost approaches can greatly aid the appraiser in determining the value of special use properties, like churches or schools.

Income Approach - The third approach to value is called the income approach.  Some properties generate income for their owners -- the most obvious examples being rental properties such as apartment buildings, non owner-occupied houses and duplexes and the like.  The rental income an owner might reasonably expect from a property is part of its value.  For a purely owner-occupied residential property, this may not be applicable, but it can be important if the property is to be rented out or used otherwise to generate income, such as a storage facility, cell tower rental and office building.