Applications of the Cost Approach

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The cost approach is most useful when

 

Improvements are new or almost new
Site value can be well supported with market data
Improvements are at the highest and best use

 

As buildings age, it becomes more and more difficult to estimate the value by the cost approach.  FNMA does not require that the cost approach be developed if the house is old and depreciation would be difficult to estimate.  FHA specifically states that the cost approach is not required if the house is over a year old.

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