When using the cost approach for property valuation, what is the correct formula?
Correct Answer
D) Land Value + Replacement Cost - Depreciation
The cost approach calculates property value by adding the land value to the current replacement cost of improvements, then subtracting any depreciation. This method estimates what it would cost to replace the property in today's market.
Why This Is the Correct Answer
Option D correctly represents the cost approach formula used in property valuation. This method determines property value by starting with the land value (which doesn't depreciate), adding the replacement cost of improvements (buildings/structures), and then subtracting depreciation that has occurred due to physical deterioration, functional obsolescence, or economic obsolescence. This approach estimates what it would cost to recreate the property today.
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In Ontario, what is the key difference between an appraisal and a Comparative Market Analysis (CMA)?
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