The Cost Approach

The third and final method used to determine the value the coast of a property is the Cost approach. This is the least likely one to be used. This method call upon one to determine the exact cost of rebuilding the property which is impractical in many cases. Sometimes the material themselves are no longer available at a reasonable cost. This may be due to lack of understanding the technology used to create the material or a lack of its availability.  Many old Victorian homes have woods through out them which would be impractical to use today in that manor.  Some have the work of skilled craftsman build windows and door on the site instead of ordering from a reliable source and getting Milguard windows. The wood may still be available but technology has created a newer method to check off an older demand. Seldom were site-built windows dual pain. Today because of specialty companies it may not be practical for you to rebuild your property exactly as they would have 100 years ago. When the cost to produce a property is less than its completed construction cost then developers have an advantage to build the unit. However, when the cost to produce accedes the fair market value of a property then following that method is less attractive. In reality the construction coast and fair market value always are different from one another but the are pressured by the market itself to move towards one another.

The cost approach assumes that the fair market value of building a new property is simulate to the method used previously. In older properties the appraisers identifies and most measure the reductions in valuating today’s reductions. Such reductions are called accrued depreciation. Once these have been subtracted from the rebuilding a realistic estimate can be obtained but in many cases this method is impractical. There are two methods used to achieve these evaluations:

Reproduction cost, is the method of replacing the lost property in exact detail as the one lost. The Replacement cost requires that a building of equal utility be constructed. To obtain these figures a builder is usually contacted. That is the main reason this method remains impractical to use today.

Note: Images on this blog site are from a free source or taken by the author. No image or group of photos is intended to represent the people the author serves. The author does not care about Race (that is a politically correct term that he does not like because we are all of the same Race, the Human Race. He prefers the term ethnicity), color, religion, sex, gender, marital status, disability, genetic information, national origin, source of income, Veteran or military status, ancestry, citizenship, primary language or immigration status. He is a service provider for all people. We will all rise together when we band together and help one another. Joseph Erwin is a Real Estate Broker, DRE # O2131799, and a CA general contractor # B 696662. He’s a member of the CRMLS and The East Valley Association of Realtors located in the Inland Empire region of Southern California.