What is the formula for calculating the value using the Cost Approach?

The correct formula for calculating value using the Cost Approach is based on the principle that the value of a property reflects the cost to replace it, minus any depreciation. The formula involves assessing the land value independently and then determining the replacement cost of the building or improvements. By subtracting depreciation, which accounts for wear, tear, and obsolescence, this approach provides a valuation that reflects the current cost to construct a similar property.

The inclusion of land value acknowledges that the value of a property is not solely determined by the structures on it but also by the worth of the land itself. This is crucial since land typically appreciates while the structures may depreciate over time. Therefore, the approach accurately encapsulates both components of real estate value.

In contrast, the other options utilize different methods for valuation. The second choice relates to the Income Approach, which uses the capitalization rate to determine value based on the income generated by a property. The third choice employs the Gross Rent Multiplier method, which is another income-related valuation technique focusing on rental income. Lastly, the fourth option pertains to cost calculations related to selling and operating expenses, rather than a value determination based on replacement costs or asset depreciation.

By understanding the components of the Cost Approach, assessors can accurately determine