Immediately following Hurricane Katrina, why was the cost approach ineffective in valuing industrial properties that had been affected by the disaster?

• A. No one could credibly estimate the cost of rebuilding due to labor shortage
• B. The buildings were destroyed beyond repair
• C. The data for land values was unavailable
• D. Insurance data was sufficient

Answer: (A)

The cost approach relies on estimating the current replacement cost of the structure, plus land value, minus depreciation. Immediately after Katrina, there was a severe shortage of construction labor and major disruptions in material supply, causing replacement costs to be highly unstable and hard to estimate credibly. Without a defendable replacement-cost figure, the value produced by the cost approach isn’t reliable for industrial properties in the crisis moment. It wasn’t simply about land data or whether buildings could be repaired, and even if insurance data existed, it wouldn’t resolve the fundamental uncertainty in reconstruction costs caused by the labor shortage.