How does the Cost Approach begin an appraisal?

The Cost Approach begins an appraisal with determining the cost to construct the property anew. This method is particularly useful for appraising properties that are not frequently sold, such as unique structures or new constructions. By calculating the current cost to build the property from scratch, the appraiser can establish a baseline value. This involves considering the cost of materials, labor, and any other expenses that would be incurred in replicating the property.

Once the replacement or reproduction cost is determined, the appraiser then subtracts any depreciation that has occurred over time to arrive at the property's value. This approach is valuable because it focuses on the premise that a buyer would not pay more for an existing property than it would cost to create a similar one new. It ensures that the value reflects the cost considerations that influence the market, bolstering the accuracy of the appraisal in certain contexts.