In the cost approach to property valuation, what is added to the cost of replacement to determine the property's value?

In the cost approach to property valuation, the key concept is that the value of a property is determined by adding the cost of replacing the improvements to the value of the land on which the property sits. This approach is particularly useful for properties that are not frequently bought and sold, as it provides an estimation based on what it would cost to rebuild the structure and the current value of the land itself.

The reason the value of the land is added is that, in real estate, the land typically holds intrinsic value that is separate from the structures placed upon it. The land has its own market value based on location, zoning, and potential usage. Therefore, in arriving at the overall property value, it is essential to incorporate both the replacement cost of the building and the land value to capture the total worth accurately.

Market trends, sales history, and inspection results might influence property values and are aspects considered in other valuation methods, such as the sales comparison approach. However, they do not directly factor into the cost approach. Thus, adding the value of the land alongside the replacement cost of the improvements is what ultimately leads to determining the property's value in the cost approach.