Real Estate Appraisal: Chapter 16, Part 2

Key takeawaysPuntos clave

• The Cost Depreciation Approach is a real estate valuation method that estimates a property's worth by calculating the replacement or reproduction cost of improvements and subtracting accrued depreciation
• This specific appraisal technique is ideal for special-purpose buildings, such as schools or churches, where market data is scarce
• Appraisers categorize value loss into three types: physical wear, functional deficiencies, and external economic factors
• Because land does not lose value over time, its worth is calculated separately and added back at the end of the process
• Professionals may use detailed techniques like the quantity survey method for accuracy or simpler tools like the economic age-life method to determine depreciation rates
• Ultimately, this approach relies on the principle of substitution, assuming a buyer will not spend more than the cost of creating a comparable alternative