Appraisal Report: Cost Approach

The final valuation approach that would like to be discussed by Capital Corp Merchant Banking is the Cost Approach.  This approach assumes that no buyer will pay more for an asset than it would cost to build its equal.

The first step of the cost approach would be to determine the site value, likely by the sales or income approach previously discussed.  Thereafter the improvements to the subject site are evaluated to determine what the cost would be to reproduce in current market terms.   That value is then depreciated based on remaining life and elements of obsolescence.  That value added to the site value equates to the subject site value.

As with any valuation analysis there are certain limitations that must be taken into account.  Take for example the assumption that similar sites to the subject are not only available but also allow all improvements; another example is the cost of the improvements of the subject.  The appraiser will face this issue must estimated improvements cost be the exact same as the subject or will equivalent structures suffice.

Despite such assumptions the cost approach is still considered one of the best valuation methods for value determination of improved real estate.

For more information about Capital Corp Merchant Banking, kindly review our website at http://www.capitalcorpmerchantbanking.com.

Respectfully,

Capital Corp Merchant Banking, Inc.