What does the Factored Historical Cost Method apply to a previous value?

The Factored Historical Cost Method utilizes a previous value in conjunction with an index or trend factor from a construction cost index to estimate the current cost of an asset. This method is commonly applied in real estate appraisal to adjust historical costs, taking into account the changes in construction costs over time. By applying an appropriate index, an appraiser can reflect the increase or decrease in costs, thereby arriving at a more accurate and updated valuation of a property based on its historical cost.

This approach is particularly useful when market data is limited or when the property has unique characteristics that make direct comparisons challenging. The construction cost index serves as a reliable benchmark that captures market trends, ensuring that the historical costs are adjusted accurately to reflect current economic conditions.