CA DRE #00851293
Colleen Fitzpatrick , CA DRE #00851293Phone: (415) 602-0553
Email: [email protected]

What is the cost approach method in real estate?

by Colleen Fitzpatrick 06/05/2023

How the cost approach method is used in real estate featured image

The cost approach is one of the three main methods used in real estate to calculate the value of a property. Understanding how it works may be beneficial in your next property purchase. 

What is the cost approach method in real estate?

The cost approach method is the comparison of the price a buyer would pay for a property in comparison to the cost of building the same property from scratch. This includes the land value the property sits on, the cost of building materials needed to construct the property and less depreciation. 

When would you use a cost approach?

The cost approach appraisal is often used in the construction of exclusive-use properties. This includes but is not limited to libraries, schools, religious properties and more. 

These building types generally don’t bring in much income, so using the comparable or income approach (two different methods to figure out the value of a property) won’t bring in accurate results. 

The cost approach is often used in new construction, as market value is reliant upon project quality and completion. Each stage of the project is reappraised to allow the release of funds to complete the following steps of the project. 

What is the formula for cost approach real estate?

Cost approach is calculated using this formula: property values = land values plus cost new + depreciation. 

Please note, a low-cost approach appraisal can be a sign of an overactive market, so it’s best to hire a professional advisor when purchasing a new construction or an exclusive use property.

About the Author

Colleen Fitzpatrick

Having the distinction of representing many of Marin and San Francisco’s most luxurious homes, Colleen Fitzpatrick brings a wealth of expertise and experience to her clients. Her finesse in handling high-end transactions has been finely tuned with the highest level of integrity and diplomacy. Associating with Golden Gate Sotheby’s International Realty has further broadened her sphere to include a network of highly skilled associates all over the world.

Throughout her career, Colleen has partnered in the construction of over 25 homes, 4 for her own family, and participated in numerous land subdivision projects, so her clients benefit from her broadened perspective. In her free time, travel, especially to India, has become her passion.

Colleen’s commitment to her client’s success, adhering to the highest level of professionalism, and holding her support team to this same standard is assured. She is highly aware of the discretion and privacy necessary for her clientele. Working with Colleen, sellers, and buyers can be confident they have made an excellent choice in their selection of an agent.

Designations: Broker, CA DRE #00851293