When using the cost approach, what is 'cost new'?

In the context of the cost approach, "cost new" refers specifically to the current cost required to construct a property that is similar in nature, design, and utility to the subject property, using contemporary materials and methods. This figure is vital for appraisers using the cost approach, as it serves as the basis for determining the value of a property by estimating what it would cost to replace or reproduce it at today's prices.

Using this approach, the appraiser will calculate "cost new" considering factors such as the current prices of labor and materials, as well as any relevant construction techniques. This estimation is then adjusted for depreciation—both physical and functional—thereby allowing the appraiser to arrive at a value that reflects the market conditions and characteristics of the property in question.

The options that do not correctly define "cost new" emphasize different aspects of property valuation: the original purchase price focuses on historical transactions rather than current construction costs, the estimated market value relates to how the property is perceived in the market rather than explicitly its cost of construction, and projected income pertains to investment valuation instead of the cost-based perspective of the appraising process. Thus, only the choice that specifies the cost to construct a similar property at current prices accurately defines "cost new