Which of the following represents the formula for the cost approach?

• A. Indicated Value = Cost New + Site Value - Accrued Depreciation
• B. Cost New - Accrued Depreciation (Physical, Functional, External) + Site Value = Indicated Value
• C. Cost New + Accrued Depreciation - Site Value = Indicated Value
• D. Site Value - Cost New + Accrued Depreciation = Indicated Value

Answer: (B)

In the cost approach, value is estimated by taking the cost to replace or reproduce the improvements (cost new), subtracting the depreciation that has accrued due to physical wear, functional obsolescence, and external factors, then adding the land’s value (site value). This reflects that the building or improvements lose value over time, while the land value is considered separately and does not depreciate. The standard form of the formula expresses this as Cost New minus Accrued Depreciation plus Site Value equals Indicated Value. For example, if cost new is 300,000, depreciation is 60,000, and site value is 50,000, the indicated value would be 300,000 - 60,000 + 50,000 = 290,000. The other expressions either place depreciation in the wrong direction or treat site value incorrectly, which misstates how depreciation and land value contribute to overall value.