The Student Handbook to T HE A PPRAISAL OF R EAL E STATE 1 Chapter 14 The Cost Approach

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 14 2 Relation to Appraisal Principles  Substitution  Supply and Demand  Contribution  Highest and Best Use  Stabilization

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 14 3 Applicability and Limitations  Land Value  Reproduction and Replacement Cost Estimates

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 14 4 Figure Cost Approach Procedure (one of many possibilities)

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 14 5 Cost Estimates  Direct Costs Usually in the builder’s contract to build  Indirect Costs Costs outside the building contract but still part of the cost of construction

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 14 6 Entrepreneurial Incentive Entrepreneurial Profit Estimating Entrepreneurial Profit and Incentive  As a dollar amount  As a percent of Land cost Land plus building cost Land plus building cost, plus soft costs

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 14 7 Depreciation  Physical  Functional  External Physical Deterioration  Caused by wear or tear or the passage of time Functional Obsolescence  Usually because the property no longer conforms to a market requirement or is not in compliance with highest and best use External Obsolescence  Caused by factors outside the property

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 14 8 Problems Suggested solutions begin on page 365.