Additionally, a cost new of the buildings and other improvements must be calculated. This can be done by consultation with area contractors who specialize in the type of property being appraised or through a recognized cost service manual. Also, sales of property with newly constructed structures may give an insight into cost new or Cost comparables, if available, can also assist in the estimation of cost new. However, it should be pointed out, it is rare that any one building is exactly like another. After the cost new has been estimated, depreciation from all sources must be approximated.
Depreciation is basically a measure of the loss of in value inherent in the property.
It is also known as a loss of utility and hence value from any cause. This can include economic situations, environmental forces, nonconformity to surrounding uses, or an inability to generate sufficient cash flow to justify the cost. The cost approach is best utilized in new or reasonably new structures. The inherent liability in utilization of this approach to value is the estimation of actual depreciation from all causes. As a property ages, this approach will have lessening validity as an indicator of worth.