Approaches to Value
There are three traditional approaches to value utilized by appraisers/valuers, when possible, as follows:
Cost Approach to Value – This approach is based upon the principle of contribution to value. The value of the component of property depends upon its contribution to the value of the whole property.
Market Approach to Value – This approach is based upon the principle of substitution. The mineral property being valued is compared to properties having similar characteristics that have been transacted in the open market, with an adjustment of the sales price or other transaction terms performed to account for the differences between the comparables and the subject property. The courts tend to prefer the Market Approach over the other two Approaches.
Income Approach to Value – This approach is based upon the principle of anticipation of benefits. Value is based on the present value of future benefits from property ownership.
Mineral appraisal/valuation approaches are far more specialized than standard appraisal approaches. Factors such as the development status, availability and quality of data, market, value opinion type, property type and other factors may prevent one or more of the methods/approaches from being performed. Valuation methods are, in general, subsets of Valuation approaches. Some methods can be considered to be primary methods for Valuation while others are secondary methods or rules of thumb considered suitable only to check Valuations by primary methods.