There are two common methods of valuing real estate: the cost approach and the income approach.
The cost approach estimates the value of a property by considering the cost of reproducing the property minus depreciation.
In other words, the value of the property is equal to the cost of constructing a similar property minus the amount that the property has depreciated over time.
The income approach estimates the value of a property by considering the potential income that the property could generate. In other words, the value of the property is equal to the present value of the expected future income from the property.
The cost approach is often used to value land, because it is difficult to estimate the potential income that land could generate. The income approach is often used to Property value income-producing properties, such as office buildings, apartments, and retail stores.
Both methods have their advantages and disadvantages. The cost approach is more straight-forward, but it can be difficult to estimate the cost of reproducing a property.
The income approach is more complex, but it can be more accurate in valuing income-producing properties.