Which approach to property valuation is primarily based on replacement costs?

The cost approach to property valuation is fundamentally centered on the concept of replacement costs. This method estimates the value of a property by determining the current cost to construct a similar structure, minus any depreciation that may have occurred due to age, wear and tear, or obsolescence. The idea is that a knowledgeable buyer would not pay more for a property than it would cost to replace it with a similar one, assuming they could construct it in similar conditions.

In this approach, assessors typically calculate the cost of replacing the building, accounting for all physical and functional depreciation. This method is particularly useful in assessing unique properties or those with few comparable sales because it directly ties the value to construction costs rather than relying on market transactions or income generation potential, which are the focus of the market and income approaches, respectively.

Thus, the cost approach is the most appropriate choice when discussing property valuation based on replacement costs, highlighting its unique position within the broader context of property valuation methodologies.