Steps in Applying the Cost Approach

There are five steps in applying the cost approach to obtain an appraised value for property.  The steps are as follows:

1. Estimate the cost to reproduce the existing building as new and site improvements. 

2. Estimate all forms of depreciation.

3. Calculate the depreciated value of the property by subtracting the result of Step 2 from the value of Step 1.



4. Estimate the value of the site (land only), as if it were vacant using the sales comparison approach (assume site will be improved to its highest and best use).

5. Add the value of the site to the deprecited value of the improvements [step 3 + step 4].