What is the cost approach?

The cost approach is the easiest to understand. The appraiser uses information on local building costs, labour rates and other factors to determine how much it would cost to construct a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for.

Why would you pay more for an existing property if you could spend less and build a brand-new home instead? While there may be mitigating factors, such as location and amenities, these are usually not reflected in the cost approach.