In the cost approach, what is deducted from the replacement or reproduction cost?

In the cost approach to property valuation, the focus is on determining the value of a property by calculating the cost to replace or reproduce it and then adjusting this amount for any accrued depreciation. Accrued depreciation reflects the reduction in value of the property due to factors such as physical deterioration, functional obsolescence, or economic obsolescence.

By deducting accrued depreciation from the replacement or reproduction cost, appraisers arrive at the current value of the property, which accurately reflects its worth in the market considering all forms of depreciation that may have occurred over time. This process is essential, as it ensures that the value assigned to the property is based on its actual condition and current market context, rather than merely what it would cost to construct a similar property without accounting for wear and tear or other depreciating factors.

The other options do not appropriately align with the cost approach’s methodology; net income pertains to income-producing properties and would not directly relate to estimating property value in this context, market value relates to the demand and supply dynamics in the marketplace rather than construction costs, and equity refers to ownership interest in a property, which is not relevant in calculating replacement or reproduction costs.