The Cost Approach
- Topics:
- Appraisal
- Tags:
- Approach,
- Chet Boddy,
- Cost Approach,
- Finance,
- Income,
- Operational Accounting,
- Sales,
- Sales Strategy
- Source:
- Chet Boddy
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Overview: The cost approach is one of the three standard methods appraisers use to estimate value. The other two are the income approach and the sales comparison approach. The income approach is used mainly for commercial and residential income properties where value is strongly related to rents. Understanding the cost approach requires learning some new meanings for old words. Cost, price and value are good examples. Cost refers to construction and development costs, price refers to listing and selling prices, and value is always an estimate or opinion. The cost approach reflects market behavior because buyers and sellers relate value to cost. The economic principle of substitution holds that a well-informed buyer will not pay more for a property than the cost to buy a similar piece of land and construct a similar building. Buyers often do some kind of cost analysis when making the decision to buy or build. Developers usually do a cost analysis before they decide to begin a new project.
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Format: HTML | Date: Jan 2003 | Pages: 1
