The Cost Approach
The Cost Approach is a property valuation method that estimates the value of a property by calculating the cost of constructing a similar property from scratch, minus any depreciation. This approach is based on the principle that a knowledgeable buyer would not pay more for an existing property than the cost of building an equivalent one.
The Cost Approach involves determining the land value, estimating the cost of construction (including materials, labor, and overhead), and then subtracting depreciation, which accounts for physical wear and tear, functional obsolescence, and external factors that might affect the property’s value.
This method is particularly useful for appraising new constructions, special-purpose properties, and properties with unique features that are not easily comparable to others. It is one of the three primary methods of property valuation, alongside the Sales Comparison Approach and the Income Approach, and provides a reliable estimate of value when there are few comparable sales available.
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