The Comparative Unit Method is a method of estimating the cost of a structure. It is the most common method of estimating costs used by residential appraisers. Although units of measure other than the square foot may be used, the comparative unit method is often called the Square Foot Method of estimating cost.
|•||The cost per square foot (or other suitable unit) of a recently built comparable structure is calculated|
|•||The cost per square foot is applied to the subject property|
If a house 2,000 square foot house recently sold for $230,000 and the site was worth $30,000 then the cost per square foot for the house was $100.
If the subject is a new 2,200 square foot similar house and the subject's site cost $40,000 then it is logical that the value of the subject using the cost approach is $260,000.
In this case the comparative unit in the case was the square foot which is generally suitable for residences. The cost per cubic foot may be suitable for warehouses; the cost per room for hotels; and the cost per unit for apartments.
The comparative unit method only works, of course, when the houses are similar in size and quality. Location is not really a factor since the value of the lot generally includes the location value.