What is the main function of the Cost Approach in property valuation?

The primary function of the Cost Approach in property valuation is to estimate the value of a property based on the cost to replace or reproduce it, adjusted for any depreciation that has occurred. This method is particularly useful for valuing new or unique properties where there may not be enough comparable sales data available.

In applying the Cost Approach, an appraiser considers the current cost of constructing a similar structure (or replacing the existing one) and then subtracts the depreciation that has occurred due to factors such as physical wear and tear, functional obsolescence, or economic obsolescence. This method is often used for special-purpose properties, such as schools, hospitals, or other types of properties that do not frequently transact in the market, thus providing a clear and direct assessment of value based on tangible costs incurred.

While estimating market trends, determining recent sales prices, and assessing potential rental income are important aspects of real estate analysis, they do not align with the core purpose of the Cost Approach, which focuses specifically on the relationship between construction costs and property value.