In the cost approach, what is the fourth step?

In the cost approach, what is the fourth step?

• A. Add value of site to total depreciation to equal market value
• B. The total depreciation cost of building by subtracting accrued depreciation from replacement cost
• C. Estimate the replacement cost of the building
• D. Estimate value of site

Answer: (B)

In the cost approach, you first determine what it would cost to replace the building, then you account for depreciation to reflect wear and obsolescence. Subtracting the total accrued depreciation from the replacement cost gives the building’s current value before considering the site. This step is crucial because it converts the ideal replacement cost into a realistic value that reflects condition and functionality. After obtaining this depreciated building value, you would estimate the site value and then add the two together to arrive at the total property value. So the act of calculating depreciation by deducting accrued depreciation from replacement cost is the key step that establishes the building’s value in its present state before combining with the site value.

In the cost approach, you first determine what it would cost to replace the building, then you account for depreciation to reflect wear and obsolescence. Subtracting the total accrued depreciation from the replacement cost gives the building’s current value before considering the site. This step is crucial because it converts the ideal replacement cost into a realistic value that reflects condition and functionality. After obtaining this depreciated building value, you would estimate the site value and then add the two together to arrive at the total property value. So the act of calculating depreciation by deducting accrued depreciation from replacement cost is the key step that establishes the building’s value in its present state before combining with the site value.