Which appraisal method focuses on the cost to reproduce a property minus depreciation?

The correct answer is the Cost Approach, which centers on determining the value of a property based on the cost to reproduce or replace it, adjusted for depreciation. This approach is particularly useful for properties that are unique or have few comparable sales, such as special-purpose buildings or new constructions.

In the Cost Approach, appraisers first estimate the current cost of constructing a similar property, then subtract accrued depreciation to arrive at the appraised value. The rationale behind this method is that a buyer would not pay more for a property than what it would cost to create a similar one from scratch, minus any value lost due to age or obsolescence.

This method is distinct from the others listed. The Sales Comparison Approach looks at recent sales of comparable properties to derive value, making it more reliant on market activity. The Income Approach is focused on the income-generating potential of the property, basing value on the net operating income it produces and applicable capitalization rates. Lastly, the Market Data Approach, generally synonymous with the Sales Comparison Approach, emphasizes comparative property sales data.

Understanding the Cost Approach is essential for appraisers, especially in scenarios involving specialized properties that do not frequently transact in the market.