Valuation method estimates current construction cost, deducts depreciation, adds land value. Used for unique properties when comparables unavailable. This is:

The Replacement Cost Approach is a fundamental valuation method in real estate, particularly important for unique properties where comparable sales data is unavailable. This approach estimates what it would cost to construct a similar property today with modern materials and design, then accounts for depreciation due to physical deterioration, functional obsolescence, and external factors. The method adds the land value since land doesn't depreciate. In California's real estate market, this approach is crucial for special purpose properties like churches, government buildings, or custom homes. The question tests understanding of different valuation approaches by describing a process that calculates current cost minus depreciation plus land value, which is the hallmark of the Replacement Cost Approach. This differs from Reproduction Cost (which duplicates exact original construction), Market Data (comparing to similar properties), and Income Approach (based on property income potential). Students often confuse the two cost approaches, but the key distinction is that replacement cost uses current materials and standards while reproduction cost attempts exact replication of original construction.