What is the primary use of the "cost approach" in real estate?

The "cost approach" is primarily used for the valuation of unique or special purpose properties because it focuses on estimating the value based on the cost to replace or reproduce the improvements, with adjustments made for depreciation. This method is particularly useful when comparable sales data is scarce or when the property doesn't frequently change hands, which is often the case with unique or specialized properties such as schools, churches, or hospitals.

In situations where properties cannot be easily compared due to their unique attributes, the cost approach provides a reliable means of determining value by assessing what it would cost to construct a similar property, including land acquisition, building materials, labor, and other associated costs. This method emphasizes the principle that a rational buyer would not pay more for a property than it would cost to construct a similar one, thereby establishing a more objective basis for valuation in cases where market data may be limited.