What is the formula used in the Cost Approach for calculating Market Value?

The formula used in the Cost Approach for calculating Market Value emphasizes the components of cost associated with producing or acquiring a property. The correct formula considers the replacement or reproduction cost of the improvements and accounts for the land value, as well as other adjustments necessary to arrive at a complete market value.

In this formula, Market Value is determined by multiplying the Gross Quantity (GQ) of the property by the sum of the Product of Improvement Cost and Quality Index (PI × QI) and the Product of Land Cost and Quantity Index (PL × QL). This represents the costs associated with both the improvements and the land, effectively capturing the overall value added through construction and the underlying land.

Additionally, the formula concludes with the addition of Other Adjustments (OA), which might include factors like depreciation or extra costs not already factored in. This comprehensive approach is what allows for an accurate reflection of the property's value as it considers all relevant aspects of cost in the market.

This formula is widely accepted in mass appraising and highlights the importance of applying a systematic process to evaluate property value from a cost perspective, ensuring that all contributing factors are duly accounted for.