In which scenario is the cost approach most appropriate for estimating value?

The cost approach is particularly effective for estimating value in scenarios involving special purpose properties that have little market value. This approach is based on the premise that the value of a property can be determined by calculating the cost to replace or reproduce it, minus any depreciation.

Special purpose properties, such as churches, schools, and certain types of public facilities, often do not have a vibrant market for comparable sales due to their unique nature and specific uses. In such cases, relying on market data can be challenging because there are few sales of similar properties to guide the appraisal. Instead, the cost approach provides a more reliable valuation method, allowing appraisers to assess the property based on the costs incurred to construct a similar property, adjusted for depreciation related to age, condition, and other factors.

In contrast, residential properties with high market activity benefit more from the sales comparison approach, as there are ample comparable sales available to base value estimations on. Commercial properties with several comparable sales also find more accurate valuation through the sales comparison approach, as the market dynamics can be observed more clearly. Developments in urban settings may experience variability in value due to market fluctuations and demand, making the sales comparison approach more applicable. Therefore, the cost approach shines in situations where market activity is