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Formula – Cost Approach Property Valuation
C – D + L = V
C – Improvement costs
D – Depreciation
L – Land value
V – Property value
The cost approach is one of the most common methods of estimating the value of properties.
The answer is derived from asking the question “How much would it cost to build a similar property to the one in question?”.
Depreciation is a deduction in the equation as it represents the lesser condition of the property over time. And land value is added to the formula to properly factor in the property value as a whole consisting of improvements and land value.
Do be mindful that the actual cost of improvements will be subject to various variables that heavily depend on factors such as geography.