Cost Approach Calculator Formula

Understand the math behind the cost approach calculator. Each variable explained with a worked example.

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Formulas Used

Indicated Property Value

indicated_value = land_value + depreciated_cost

Depreciated Improvement Value

depreciated_improvement = depreciated_cost

Accrued Depreciation

total_depreciation = accrued_depreciation

Variables

VariableDescriptionDefault
land_valueLand Value(USD)150000
replacement_costReplacement Cost of Improvements(USD)400000
effective_ageEffective Age(years)10
total_useful_lifeTotal Useful Life(years)60
accrued_depreciationDerived value= replacement_cost * (effective_age / total_useful_life)calculated
depreciated_costDerived value= replacement_cost - accrued_depreciationcalculated

How It Works

Cost Approach to Property Valuation

The cost approach estimates value by adding land value to the depreciated replacement cost of improvements.

Formula

Value = Land Value + (Replacement Cost - Accrued Depreciation)

Accrued Depreciation = Replacement Cost x (Effective Age / Useful Life)

When Used

  • New or special-purpose buildings with few comparable sales
  • Insurance valuation
  • Properties with unique features not captured by income or sales comparison

    • Worked Example

    Land is valued at $150,000. The building would cost $400,000 to replace and has an effective age of 10 years out of a 60-year useful life.

    land_value = 150000replacement_cost = 400000effective_age = 10total_useful_life = 60
    1. 01Accrued depreciation: $400,000 x (10 / 60) = $66,667
    2. 02Depreciated improvement value: $400,000 - $66,667 = $333,333
    3. 03Indicated property value: $150,000 + $333,333 = $483,333

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