When utilizing the cost approach, what should an appraiser consider?

When using the cost approach to valuation, an appraiser focuses on determining the value of a property based on the cost to replace or reproduce the improvements on the property, adjusted for depreciation, and then adding the value of the land.

The correct choice reflects this method accurately. It indicates that the appraiser should calculate the replacement cost of the structure, subtract any depreciation that may have occurred, and then add the current value of the land to arrive at the total value of the property. This method is particularly useful for properties that are unique or not frequently sold because it establishes a value based on the cost to replicate the property rather than relying primarily on market comparables or historical sales data.

In contrast, considering only the market value of the land neglects the importance of the structures on the property, and focusing solely on current rental income does not account for depreciation or the costs associated with building the structures. The historical sales price of the property is also less relevant in this approach, as it does not directly inform the cost to replace the improvements and may not reflect current market conditions.