Direct answer
What does cost approach mean?
The cost approach is a valuation approach that adds land value to the depreciated cost of the improvements.
Exam cue: Think replacement or reproduction cost, less depreciation, plus land value.
What does it look like in a question?
Example
A newer special-purpose building has limited comparable sales, so cost evidence receives added attention.
Common exam trap
What should you not confuse it with?
Construction cost does not automatically equal market value.
Related valuation terms
AppraisalAn appraisal is an opinion of value developed by a qualified appraiser for an identified use, property interest and effective date.CapitalizationCapitalization is the process of converting income into an indication of value.ComparableA comparable is a property used as market evidence because it is sufficiently similar to the property being analyzed.Comparative market analysisA comparative market analysis (CMA) is a broker's analysis of relevant market data to help a seller or buyer consider a probable price range.DepreciationDepreciation is a loss in property value from physical deterioration, functional obsolescence or external obsolescence in appraisal.External obsolescenceExternal obsolescence is a loss in value caused by influences outside the property.
Sources used2 references with section locators
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