Cost approach

Valuing a property at what it would cost to replace the building today, less depreciation, plus the value of the land. Most useful for unusual buildings with no comparable sales.

Where you will meet it

Cost approach appears in 3 learning outcomes on the CFA syllabus. A few of them:

• Outline the main methods for valuing real estate
  CFA Level I · Alternative Investments

  “The cost approach estimates what it would cost to replace the building, less depreciation, plus land value, and is most relevant for unusual properties with no comparable market.”

• Explain how due diligence is carried out on real estate investments and the approaches used to value them
  CFA Level II · Alternative Investments

  “The cost approach values land plus replacement cost less depreciation, useful for new or specialised buildings.”

• Explain how private property investments are vetted and valued
  CFA Level III · Private Markets Pathway

  “The cost approach takes replacement cost less depreciation plus land value.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with C · Glossary