If a new structure represents highest and best use of the land, cost normally has a direct relationship to value. Indeed, a purchaser will pay no more than the cost of acquiring an equally suitable property of equivalent utility either by purchase or by acquiring a site and constructing improvements. The real estate market reflects attitudes and opinions in the minds of buyers and sellers and their actions in the market create market data. The Market Approach value of a given property is estimated by comparison with similar properties which have been recently sold or offered for sale in the open market. Of all the appraisal methods, the market approach is the most direct, best understood, and the only one directly reflecting the balance of supply and demand for a whole property in actual marketplace trading.
Market value is that value about which sales prices fluctuate and towards which they gravitate.
Market value will normally coordinate quite closely with the cost approach if the appraiser has accurately calculated depreciation. When analyzing the value of real property, the appraiser must recognize the fact that when a purchase price has been agreed upon, both buyer and seller have expressed their opinions of value. Such opinions should not be disregarded, for in reality they make market value. The Capitalization of Income Approach is based on the premise that there is a relation between the income a property can earn and its value. All methods of capitalization are predicated upon the notion that value is the present worth of future net benefits.