What does the cost-depreciation approach estimate?

The cost-depreciation approach is a method used in real estate appraisal that focuses on determining the value of a property based on the cost to reproduce or replace it, adjusted for depreciation. This approach begins with estimating the current cost to rebuild the property as if it were new, which includes considering materials, labor, and other expenses. After calculating this cost, any depreciation that has occurred due to physical wear and tear, functional obsolescence, or economic obsolescence is subtracted from the reproduction cost. This results in a current value that reflects what the property would be worth in its present condition.

This method is particularly useful for valuing properties that are unique or not easily compared to others, such as special-use properties, where comparable sale data may be limited. The emphasis is on understanding both reproduction or replacement costs and how much value has been lost over time, resulting in the estimation of the property's current worth after depreciation is factored in.