Kelly French Real Estate Inc
Kasey D Hilyard, PLLC, Kelly French Real Estate IncPhone: (407) 488-9879
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Cost approach appraisal: Detailing its value in real estate

by Kasey D Hilyard, PLLC 08/19/2024

How the cost approach method is used in real estate featured image

The cost approach is one of the three main methods used in real estate to calculate the value of a property. Understanding how it works may be beneficial in your next property purchase. 


What is the cost approach method in real estate?

The cost approach method is the comparison of the price a buyer would pay for a property in comparison to the cost of building the same property from scratch. This includes the land value the property sits on, the cost of building materials needed to construct the property and less depreciation. 


When would you use a cost approach?

The cost approach appraisal is often used in the construction of exclusive-use properties. This includes but is not limited to libraries, schools, religious properties and more. 

These building types generally don’t bring in much income, so using the comparable or income approach (two different methods to figure out the value of a property) won’t bring in accurate results. 

The cost approach is often used in new construction, as market value is reliant upon project quality and completion. Each stage of the project is reappraised to allow the release of funds to complete the following steps of the project. 


What is the formula for cost approach real estate?

Cost approach is calculated using this formula: property values = land values plus cost new + depreciation. 

Please note, a low-cost approach appraisal can be a sign of an overactive market, so it’s best to hire a professional advisor when purchasing a new construction or an exclusive use property.


About the Author
Author

Kasey D Hilyard, PLLC

I grew up in a small town in Wyoming and married my high school sweetheart. I purchased my first home when I was 18 and immediately found a passion for real estate. One year later, I passed the Wyoming Real Estate Exam, and successfully purchased my second property! I love to help people navigate the real estate process and connect with my customers to help them achieve their real estate goals! With more than 25 years of experience in the industry – including residential, commercial, timeshare sales, and property management: I thrive on new opportunities to assist Buyers and Sellers. When not listing a property or negotiating an offer, you may find me on the beach enjoying some "Salt Life", volunteering at my child's school, and helping out in the community. Finally, I am proud to sit on the board of directors of a dedicated 501c3 foundation & help veterans, active service members, & first responders find relief from PTSD through scuba diving.