When using the cost approach to determine value, which formula is applied?

The cost approach to determining value primarily focuses on assessing how much it would cost to replace a property minus any depreciation that has occurred. This method is commonly used for valuing properties that are unique or not frequently sold in the market, such as public buildings or specialized structures.

In this approach, the first step is to calculate the cost of replacing or reproducing the property. After establishing that cost, depreciation, which reflects the loss of value over time due to factors like wear and tear, obsolescence, or market conditions, is subtracted from this total. The resulting figure provides an estimate of the property’s current value based on the replacement cost concept.

The other options do not outline the cost approach method. Considering gross income minus expenses relates to the income approach used for investment properties, while net income plus land value is more about assessing overall profitability rather than property valuation. Lastly, analyzing comparable properties aligns with the sales comparison approach, which derives value based on similar properties sold. Understanding the nuances of different valuation methods is essential for effective real estate appraisal and decision-making.