What does the cost approach involve in appraising property?

The cost approach in appraising property involves calculating the value based on the estimated cost to construct a similar property, which includes the cost of labor and materials, as well as any added site improvements. This method is particularly useful for properties that are new or unique, where comparable sales data is limited. By determining what it would cost to reproduce or replace the property, appraisers can derive its value based on what a buyer would be willing to pay to create a similar asset. This approach is essential for assessing properties like schools, churches, or special-use buildings, where income and comparable sales may not provide an accurate valuation.

The other options reflect different appraisal methods or concepts. For instance, focusing solely on recent sales prices pertains to the sales comparison approach, while evaluating land alone does not consider the structure's value, which is essential in a full appraisal. Discounting future income potential relates to the income approach, which is not applicable in this scenario. Each of these approaches serves specific purposes in property valuation, but the cost approach distinctly emphasizes the cost of new construction to ascertain value.