In which scenario would an appraiser most likely choose to use the cost approach?

The scenario where an appraiser would most likely choose to use the cost approach is when assessing newly constructed properties. The cost approach is based on the premise that the value of a property can be derived from the cost to build a similar structure minus any depreciation. Newly constructed properties tend to have more straightforward and current cost data available, which makes it easier for appraisers to estimate replacement costs accurately.

In this situation, developers and buyers are particularly interested in the cost to replace the structure because it reflects the latest construction practices, materials, and compliance with current codes. Since depreciation may not significantly impact new constructions, appraisers can effectively utilize this approach to determine value based on construction costs alone, resulting in a reliable valuation.

Conversely, other scenarios may present challenges for the cost approach. For income-generating properties, the income approach is often more appropriate as it reflects the operational potential of the property. Older properties with significant depreciation complicate the cost approach since accurate estimates of depreciation can be difficult, and it might be more useful to consider the income or sales comparison approach. Similarly, properties with unusual characteristics may not fit the standardized method of the cost approach, making the comparable sales or income approach more effective for those unique scenarios.