What defines the 'cost approach' to property valuation?

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The 'cost approach' to property valuation is defined as a method that estimates the value of a property based on the current replacement cost of the improvements made to it, minus any depreciation that may have occurred over time. This approach is particularly useful for new constructions or properties that do not frequently change hands because it allows the assessor to determine how much it would cost to replace an asset in its current form, reflecting both the cost of materials and labor while accounting for any wear and tear or other factors that may diminish value.

This method rests on the principle that a rational buyer would not pay more for a property than the cost to build it new, adjusted for depreciation. Depreciation can arise from several factors, including physical deterioration, functional obsolescence, or external obsolescence, which affects the overall value of the property. By accurately calculating replacement costs and adjusting for depreciation, assessors can arrive at a realistic market value for the property in question.

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