Property Valuation
What is the 'cost approach' to real estate appraisal and when is it most reliable?
AEstimating the purchase price based on the buyer's maximum affordable cost
BEstimating value as land value plus the cost to replace improvements at current prices minus depreciation — most reliable for special-use properties with few comparables, and new construction✓ Correct
CEstimating value based on the total cost of all improvements made to the property
DCalculating the seller's original cost to determine minimum acceptable price
Explanation
The cost approach estimates value by adding land value (from comparable sales) to the depreciated replacement cost of improvements. Formula: Value = Land Value + (Replacement Cost − Accumulated Depreciation). It is most reliable for new or nearly new properties, special-use properties (churches, schools), and properties with few market comparables.
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