The Cost Approach

Advantages:
- People understand it.
- It is often the only method to use in the appraisal of special purpose properties.
- There is relative ease in making a cost calculation.
Disadvantages:
- It is difficult to estimate depreciation, particularly in older buildings.
- While the cost of construction appears relatively easy to estimate, there is no exact cost
figure. Several methods yield varying costs.
- Construction costs are constantly changing.
The Direct Comparison Approach
Advantages:
- People understand it and use it.
- It gets around the problems of estimating costs, depreciation, rentals, and expenses.
- It is generally accepted by courts, boards, and the general public.
Disadvantages:
- It is sometimes difficult to obtain good comparable sales.
- Making adjustments for differences requires careful judgement and experience, and these
adjustments are often difficult to support and explain satisfactorily.
- It is often difficult to obtain relevant information relating to each sale, particularly with
reference to motivation.
- The data is historical in nature.
The Income Approach
Advantages:
- It is particularly applicable in estimating the value of income producing or investment
properties.
Disadvantages:
- The major problem with the Income Approach is the difficulty of selecting an appropriate
capitalization rate.
- Estimating the income and the operating expenses can sometimes prove difficult, and a
slight error in either estimate is magnified on capitalization.