What is the primary focus of the cost approach in real estate valuation?

The primary focus of the cost approach in real estate valuation is to determine the cost to replace or reproduce the property. This method involves estimating the current cost of constructing a similar property, adjusting for any depreciation that may have occurred over time. The underlying assumption is that the value of a property can be closely approximated by considering what it would cost to create an equivalent structure, factoring in land value and any improvements.

This approach is particularly useful in scenarios where there are few similar properties available for comparison, such as with unique or specialized buildings. It provides a comprehensive view of what an investor might need to spend to regenerate the property either through new construction or renovations, which is crucial for both buyers and assessors during the evaluation process.