Cost Approach

The Cost Approach

Land, plus what it would cost to build again, minus what time has taken off. That's the Cost Approach. On the new URAR it gets more detailed. Every building is costed on its own, from the top line down.

It adds itself up

The section opens with the Indicated Value by Cost Approach. You don't type it. It adds itself up. First, the Depreciated Cost of Dwellings, covering every dwelling on the property. Next, the Depreciated Cost of Outbuildings, only when an outbuilding is real property. Then the As Is Value of Site Improvements, and the Opinion of Site Value.

One table per building

Each dwelling gets its own Depreciated Cost table, and so does each outbuilding that's real property. Costs are broken out by Area Type, one row each. Size, times cost per square foot, equals the line cost. For a manufactured home, add one more line: delivery, installation, and setup.

Itemize it, or total it

Depreciation can be reported one of two ways. Itemized: physical, functional, and external, each with a percent and a dollar amount. Or one Total Depreciation figure. It's one or the other, never both. Either way, it comes off the cost to give the building's total.

How much life is left?

Every dwelling also reports a Remaining Economic Life and an Effective Age. Effective Age can be a single number, or a range, like eleven to fifteen years. If the remaining life is under thirty years, explain it in the commentary. FHA, VA, and USDA appraisals need effective age commentary too.

Everything else on the lot

As Is Value of Site Improvements covers everything else on the site. Each one gets a description and an amount. Group them on a single row, like driveway, fence, and septic, or split them out. The total carries to the top. Here's the gotcha. A detached garage used only for parking isn't an outbuilding. Its depreciated cost goes right here.

What's the land worth?

Site Value always needs two answers: a Primary Site Valuation Method, and an Opinion of Site Value. The method is Allocation, Extraction, Sales Comparison, or Other. Pick Sales Comparison, and a Land Comparables table appears, one row per land sale. Then the Reconciliation of Site Value covers the rest, like access, utilities, zoning, and views.

Show your method

Last, the General Description shows how you got your numbers. Cost Type is Replacement or Reproduction. Then the Cost Data Source, such as a cost service, with its effective date. Then the Cost Method and Depreciation Method, like Comparative Unit and Breakdown.

Five things to remember

One. The indicated value adds itself up from four parts. Two. Each dwelling and real property outbuilding gets its own table. Three. Depreciation is itemized or total, never both. Four. A parking-only detached garage belongs in site improvements. Five. Choose Sales Comparison for site value, and land comps come with it. That's the Cost Approach. Next up: Reconciliation.