When using the Cost Approach method, what would an appraiser do?

In the Cost Approach method, the appraiser focuses on determining the value of a property by calculating the current cost to replace or reproduce the improvements on the property, then subtracting any accrued depreciation. This approach recognizes that the value of a property is fundamentally based on the cost to construct it, reflecting what a buyer would be willing to pay to replace the property with a similar one today.

By utilizing replacement cost minus depreciation, the appraiser effectively captures the idea that although the structure may have a certain potential worth, factors such as age, wear and tear, or outdated features can diminish its overall value. This method is particularly useful for properties that are newly constructed or unique, where there are limited comparable sales available. In summary, employing the replacement cost approach allows the appraiser to derive a value based on tangible construction costs, which is a crucial element of the Cost Approach methodology.