What is the "cost approach" used in damage appraisals?

The cost approach in damage appraisals is a method that estimates the value of a property by calculating the current replacement cost of the structure, then subtracting depreciation. This approach is particularly useful for properties where there may not be sufficient comparable sales data available, such as unique or specialized properties. It provides a clear assessment of what it would cost to replace the asset while accounting for any loss in value over time due to factors like wear and tear or obsolescence.

This method involves several key steps: determining the cost to replace the building with a similar one using current materials and standards, estimating the amount of depreciation that has occurred since the original construction, and finally arriving at a value that reflects these two calculations. By focusing on the cost to recreate the property in its current state minus depreciation, the cost approach provides a grounded and objective measure of a property's value based on tangible factors rather than fluctuating market trends or income potential.