Which formula best describes the cost approach to appraisal?

Correct Answer

B) Replacement cost of improvements minus depreciation, plus land value

The cost approach estimates value by calculating what it would cost to replace or reproduce the existing improvements (buildings) at current prices, then subtracting accrued depreciation (physical deterioration, functional obsolescence, and external obsolescence), and finally adding the estimated land value. The formula is: Value = Replacement Cost of Improvements − Depreciation + Land Value. This approach is especially useful for new construction, special-use properties, and properties with few comparable sales.