Which approach estimates the value of a property by considering land value and building costs?

The cost approach estimates the value of a property by calculating the value of the land separately and adding it to the current cost of constructing the building or improvements, minus any depreciation. This method is particularly useful for valuing properties that are new or have unique characteristics where there are not enough comparable sales data to use the market approach. It provides a clear insight into the investment that would be required to replace the existing structure with a similar one, which is helpful in various contexts, including insurance and property tax assessments.

The approach directly considers both land value and building costs, making it distinctive. In contrast to the market and sales comparison approaches that rely primarily on comparative sales data and trends within the market, the cost approach emphasizes the tangible aspects of building and land, ensuring an understanding of the intrinsic value of the property itself. The income approach, on the other hand, focuses on the potential earnings from the property, thus not factoring in the land and construction costs directly.