Which of the following best describes the cost approach to property valuation?
Correct Answer
B) Determining value by adding land value to the depreciated replacement cost of improvements
The cost approach calculates property value by estimating the current cost to replace the improvements, subtracting depreciation, and adding the land value. This method is particularly useful for newer properties or unique buildings with few comparables.
Why This Is the Correct Answer
The cost approach is one of three main appraisal methods that determines property value by calculating the current replacement cost of improvements, subtracting any depreciation (physical, functional, or economic obsolescence), and adding the estimated land value. This formula (Land Value + Replacement Cost - Depreciation = Property Value) provides a logical foundation for valuation, especially useful for newer properties, unique buildings, or properties with limited comparable sales data.
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