The cost approach is the easiest to understand. The appraiser uses information on local building costs, labour rates and other factors to determine how much it would cost to construct a property similar to the one being appraised. This value often sets the upper limit on what a property would sell for.
Why would you pay more for an existing property if you could spend less and build a brand-new home instead? While there may be mitigating factors, such as location and amenities, these are usually not reflected in the cost approach.
