The Basic Cost Approach Formula

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The steps in estimating the cost approach to value follow:

 

1.Estimate the value of the land
2.Estimate the "as is" value of site improvements
3.Estimate the cost new of the improvements
4.Estimate all 3 types of depreciation
5.The indicated value by the cost approach is the sum of lines 1-3 minus depreciation (line 4)

 

The basic cost approach formula is:

 

Value = Cost - Depreciation + Site

 

where

 

1.Depreciation is the sum of physical deterioration, functional obsolescence, and external obsolescence.
2.Site is the sum of the lot value, site improvements, and landscaping.

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