Cost Approach to Value

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The Cost Approach to Value is a set of procedures through which a value indication is derived for the fee simple interest in a property by estimating the current cost to construct a reproduction of (or replacement for) the existing structure, including an entrepreneurial incentive, deducting depreciation from the total cost, and adding the estimated land value. Adjustments may then be made to the indicated fee simple value of the subject property to reflect the value of the property interest being appraised.

 

The cost approach formula is:

 

Value = Site Value + Improvements Cost New – Depreciation of all types

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