The first problem is to obtain a clear definition of value acceptable for the purpose of the appraisal.

The second problem is to obtain a clear definition of the property rights or interests that are to be valued.

The third problem is to determine the proper method, or methods, by which the defined value will be estimated.

 Anything that satisfies human being and is external to people is called good. All goods are either free or economic goods. Free goods have no value. economic goods have value but before  any good can have value, it must meet the following prerequisits:

1- Utility

2-Scarcity

3- Capacity for private ownership

4- Demand, or effective purchasing power

 In the US, appraisals are performed to a certain standard of value (e.g. -- foreclosure value, fair market value, distressed sale value, investment value). The most commonly used definition of value is Market Value. While USPAP does not define Market Value, it provides general guidance for how Market Value should be defined: a type of value, stated as an opinion, that presumes the transfer or sale of a property as of a certain date, under specific conditions set forth in the definition of the term identified by the appraiser as applicable in an appraisal.

Market value is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he considers his own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale

Thus, the definition of value used in an appraisal or  report is a set of assumptions about the market in which the subject property may transact. It becomes the basis for selecting comparable data for use in the analysis. These assumptions will vary from definition to definition but generally fall into three approaches:

• The Sales comparison approch
• The Cost approach
• The income approach

 The sales comparison approach in a real estate appraisal is based primarily on the principle of substitution. This approach assumes a prudent individual will pay no more for a property than it would cost to purchase a comparable substitute property. The approach recognizes that a typical buyer will compare asking prices and seek to purchase the property that meets his or her wants and needs for the lowest cost. In developing the sales comparison approach, the state licensed real estate appraiser attempts to interpret and measure the actions of parties involved in the marketplace, including buyers, sellers, and investors.

The cost approach was formerly called the summation approach. The theory is that the value of a property can be estimated by summing the land value and the dIn most instances when the cost approach is involved, the overall methodology is a hybrid of the cost and sales comparison approaches. For example, while the replacement cost to construct a building can be determined by adding the labor, material, and other costs, land values and depreciation must be derived from an analysis of comparable data. The cost approach is considered reliable when used on newer structures, but the method tends to become less reliable for older properties

The income approach is used to value commercial and investment properties. Because it is intended to directly reflect or model the expectations and behaviors of typical market participants, this approach is generally considered the most applicable valuation technique for income-producing properties, where sufficient market data exists to supply the necessary inputs and parameters for this approach.

Reconciliation: The appraiser using three approaches will determine which one or more of these approaches may be applicable, based on the scope of work determination, and from that develop an appraisal analysis. Costs, income, and sales vary widely from one situation to the next, and particular importance is given to the specific characteristics of the subject

 USPAP requires that appraisers to identify six key parts of the appraisal problem at the beginning of each assignment:

• Client and other intended users
• Intended use of the appraisal and appraisal report
• Definition of value (e.g. -- market, foreclosure, investment)
• Any hypothetical conditions or extraordinary assumptions
• The effective date of the appraisal analysis
• The salient features of the subject property

Based on these factors, the appraiser must identify the scope of work needed, including the methodologies to be used, the extent of investigation, and the applicable approaches to value. The rule provided the explicit requirement that the minimum standards for scope of work were:

• Expectations of the client and other users
• The actions of the appraiser's peers who carry out similar assignments