What does the cost approach require for an accurate assessment?

The cost approach is a method of property valuation that focuses on determining the value of a property based on the costs associated with its construction. This approach requires accurate assessment of either reproduction or replacement costs, which refers to the expenses needed to build an exact replica of the existing structure or an equivalent new building, respectively.

Using reproduction costs means calculating what it would cost to rebuild the property with the same materials and design characteristics. Conversely, replacement costs reflect the price of constructing a similar property with modern materials and methods. Knowing these costs is essential because the cost approach estimates value by adding the land value to the total building costs and adjusting for any depreciation.

This method is particularly useful for appraising new or unique properties where comparable sales data may be scarce. Thus, accurate assessment through reproduction or replacement costs is fundamental to generating a reliable property value under the cost approach.