The Cost Approach

The cost approach is a method of determining the value of real property that involves the construction costs of the building combined with the value of the land the improvements are on. When developing the cost approach, an appraiser typically uses a cost handbook such as the Marshall Swift Cost Handbook. There are other cost handbooks available, but the Marshall Swift Cost Handbook is the premier handbook that is recognized by the vast majority of appraisers in North America.

Below is a link to the Marshall Swift Cost Handbook Company.

Marshall Swift Cost Handbook

Cost handbooks are available for residential, commercial, and various other types of properties. Each cost handbook varies from the others, so to develop a value estimate that is most accurate, follow the given directions pertinent to each cost handbook.

When developing the value of a property from a cost handbook, it is important to remember to take into account the age of the property for depreciation purposes, and the condition of the property for deductions in maintenance related insufficiency issues. Another key element of developing the cost approach valuation is the inclusion of the land that the improvements sit upon.