What is the primary method used in the cost approach for appraising a property?

The primary method used in the cost approach for appraising a property involves estimating the cost to replace the property and then subtracting any depreciation that may have occurred. This approach is particularly useful for properties that are new or have unique characteristics that make them difficult to compare to others, such as specialized commercial properties or properties with historical significance.

Estimating replacement cost involves determining how much it would cost to build an equivalent structure using current materials and construction techniques. Once this figure is established, the next step is to account for depreciation—representing any loss in value due to factors such as wear and tear, economic obsolescence, or functional obsolescence. By subtracting depreciation from the estimated replacement cost, appraisers arrive at a more accurate valuation of the property.

This method emphasizes the intrinsic value of the property itself rather than its income-generating potential or comparison with similar properties, making it distinct from other approaches, such as the income or sales comparison approaches.