Costing Approach to Pricing
In cost approach pricing, the market price for the property is equal to the cost of land plus cost of construction, with a reduction of depreciation. It is often most precise for market value when the property is new.The cost approach is one of the three basic assessment methods. The others are market, or sale comparison, and income. The fundamental principle of the cost approach is that a potential user of real estate won’t, or shouldn’t, pay more for a property than it would cost to build an equal. The cost of construction minus depreciation, plus land, therefore it is a limit, of market value.