Cost Valuation

COST APPROACH TO VALUE

The Cost Approach to Value is based upon the principle of contribution to value. The value of the component of property depends upon its contribution to the value of the whole property.

In this approach, value is based on adding the contributing value of any improvements (after deduction for accrued depreciation) to the value of the land as if it was vacant, based on the highest and best use. If the interest appraised is other than fee simple, additional adjustments may be necessary for non-realty interest and/or the impact of existing leases or contracts.

Real estate appraisers often use the Cost Approach to Value for properties of a special or unique nature, where the Market Approach to Value cannot be used because few direct comparables exist, or where the Income Approach is inapplicable. A typical example would be the appraisal of an oil refinery, or a church property.

For minerals valuations, the Cost Approach is only applicable to Exploration Properties and some Resource Properties. It is not to be used for Development or Production Properties.