What approach to property valuation involves estimating replacement costs minus depreciation?

The approach to property valuation that involves estimating replacement costs minus depreciation is known as the Cost Approach. This method determines the value of a property by first calculating what it would cost to replace or reproduce the property and then subtracting any depreciation that has occurred since the property was built or last improved.

This approach is particularly useful for appraising properties that do not frequently sell in the marketplace, such as schools, hospitals, or unique properties where a cost-effective, functional equivalent cannot readily be found. By focusing on the cost to replace the property, appraisers can establish a baseline value that accounts for both the investment in the property and any losses in value due to wear and tear or obsolescence.

Understanding this method is vital for assessing properties accurately in scenarios where sales data might be limited, which reinforces its significance in the broader context of real estate valuation techniques.