What does the term "cost approach" in appraisal refer to?

The term "cost approach" in appraisal refers specifically to a valuation method that focuses on calculating the replacement cost of a property and then deducting any depreciation to arrive at a fair market value. This approach is particularly useful for properties that are newly constructed or for unique properties that do not have sufficient comparable sales data. In applying the cost approach, appraisers estimate how much it would cost to replace the structure with a similar one, factoring in the current costs of materials and labor, and then reduce that figure by the amount of depreciation that has occurred due to wear and tear, age, and other factors. This method provides a solid perspective on value based on the intrinsic costs associated with creating the property anew, which is why it is the correct answer in this context.