When calculating depreciation for a residential property, which method is typically used?

The cost approach method is typically used for calculating depreciation in residential properties because it focuses on estimating the value of the property based on the cost to replace or reproduce the improvements, minus any depreciation. This approach is particularly useful for properties that are unique or where there are not enough comparable sales to establish value through the market comparison method.

In this method, an appraiser first determines the current cost to construct a similar property using modern materials and techniques. After establishing the replacement cost, the appraiser then subtracts the accrued depreciation, which accounts for physical deterioration, functional obsolescence, and economic obsolescence, creating an accurate assessment of the property's current value. This makes the cost approach method an effective tool for understanding how depreciation impacts the overall valuation of residential properties, especially in cases where the physical condition of the property needs thorough assessment.

The other methods mentioned do not focus explicitly on the computation of depreciation as it relates to the physical and functional aspects of the property. The market comparison method estimates value based on comparable sales; the income approach focuses on the income potential of a property; and the gross rent multiplier method is a valuation tool used for investment properties based on their rental income. These methods have different applications and objectives and are not primarily used for calculating