Cost Approach

[doobsmeister]

Can someone explain the logic of the cost approach? It says that the value of the property should be the land plus the replacement cost, but you have to subtract a number of items including depreciation and obsolescence. Why do you need to consider depreciation when the goal is to tear down the whole building and that would be inclusive in the replacement cost? Why do repairs have to occur again when I thought the intentiion was to tear down the building and “replace” what ever is on the land? So technically, it should only be land value plus replacement cost (since all costs are included).
Can someone help me understand this? magician?

 

[doobsmeister]

Then on page 28 of schweser, it doesnt include the cost of land. why?

 

[cgrady40]

doobsmeister wrote:
Can someone explain the logic of the cost approach? It says that the value of the property should be the land plus the replacement cost, but you have to subtract a number of items including depreciation and obsolescence. Why do you need to consider depreciation when the goal is to tear down the whole building and that would be inclusive in the replacement cost? Why do repairs have to occur again when I thought the intentiion was to tear down the building and “replace” what ever is on the land? So technically, it should only be land value plus replacement cost (since all costs are included).
Can someone help me understand this? magician?

the idea is to compute a value for the building as is