What does the cost approach in mass appraisal estimate?

The cost approach in mass appraisal is a method that estimates the value of a property by calculating the costs associated with its reproduction or replacement. This approach involves determining the current cost to build a similar structure or to replicate the property, and then adjusting for factors such as depreciation and obsolescence.

The effectiveness of the cost approach lies in its ability to provide an objective measure of property value based on tangible construction expenses, regardless of market fluctuations or income potential. The values derived from this method can be particularly useful for newly constructed properties or unique ones that do not have sufficient comparable sales data.

Given this context, the other options do not align with the principles of the cost approach. For instance, estimating income potential relates more closely to the income approach, while market demand is assessed through comparative market analysis. Furthermore, average sale prices of similar properties are typically analyzed in the sales comparison approach, focusing on market trends rather than construction costs. Thus, the choice of estimating value based on reproduction or replacement costs accurately reflects the core methodology of the cost approach in mass appraisal.