How is the value determined in the cost approach for appraising property?

In the cost approach to appraising property, value is determined by calculating the replacement cost of the improvements (such as buildings and structures) and then adjusting for any depreciation that may have occurred due to age, wear and tear, or functional obsolescence. This accurate assessment ensures that the current value reflects the actual condition of the improvements. Additionally, the land value is added to this adjusted cost to arrive at the total property value.

This method is particularly useful for properties that are not frequently sold or have unique characteristics, making comparisons to recent sales or income potential more difficult. It focuses on the fundamental concept that the value of a property is primarily based on the cost to recreate it, factoring in the loss of value over time due to depreciation, thereby offering a reliable estimate of current value.

In contrast, the other methods presented primarily focus on market activity or projected future benefits, which do not align with the principles of the cost approach.