The cost approach is one of the three main methods used in real estate to calculate the value of a property. Understanding how it works may be beneficial in your next property purchase.
The cost approach method is the comparison of the price a buyer would pay for a property in comparison to the cost of building the same property from scratch. This includes the land value the property sits on, the cost of building materials needed to construct the property and less depreciation.
The cost approach appraisal is often used in the construction of exclusive-use properties. This includes but is not limited to libraries, schools, religious properties and more.
These building types generally don’t bring in much income, so using the comparable or income approach (two different methods to figure out the value of a property) won’t bring in accurate results.
The cost approach is often used in new construction, as market value is reliant upon project quality and completion. Each stage of the project is reappraised to allow the release of funds to complete the following steps of the project.
Cost approach is calculated using this formula: property values = land values plus cost new + depreciation.
Please note, a low-cost approach appraisal can be a sign of an overactive market, so it’s best to hire a professional advisor when purchasing a new construction or an exclusive use property.
Kim Clark started her real estate career in 1999 and shortly thereafter obtained her Broker’s license in 2002. After working for larger, corporate offices, she realized that her business and clients needed a more personalized and flexible firm. She founded Bayside Realty Consultants in 2007 offering a space of unity, collaboration and encouragement for agents and their clients. Kim specializes in the unique Cape Cod market comprised of primary, vacation and investment properties.
She says "It is great to be a part of helping make a homeowner's dreams come true". Clients and their individual needs can make things very exciting! Kimberly's enthusiasm is contagious and it has been a real asset in her successful career. She says, "Never quit. Just do what you like and the rest just falls into place." She is certified in several real estate designations including GRI, CBR, CRS, e-Certified, and a certified trainer.
