The Cost Approach Triad in Property Valuation

Abstract

This short teaching note delves behind semantics of the cost approach to valuation and analyses three distinct meanings of this notion in various areas of valuation practice. These three meanings are imbued with chronological attribution. Thus, in positive (market reflecting, comparative) valuation practices costs are treated as current costs, in appraisal practices (worth calculations) they are linked with the past, and in pure economic analysis of pricing (like that of A. Marshall) they are related to the future. The distinct chronological placing of each sense has implications that make popular claims about the comparative valuation sense (which entails the Depreciated Replacement Cost method) being ultimately reducible to, and predicated on, the pure economic sense, impalpable. This note may be interesting to students of property valuation as a way to structure their discussions about the meaning of cost approach and its techniques.