The cost approach values real estate as land value plus the depreciated cost of improvements. Used primarily for unique or special-purpose properties; rarely the primary method for LA multifamily.
Cost approach calculation: current land value + current replacement cost of improvements - accumulated depreciation. Most relevant for new or specialized properties where sales comparables don't exist. LA multifamily typically uses income approach or sales comparison primarily.
Cost approach is rarely used for LA multifamily valuation. When used, it's for specialized assets (mixed-use, unusual configurations) where direct comparables don't exist. Income approach (cap rate on NOI) is the dominant valuation method.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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