Which approach to valuation separates the land value from the value of improvements?

The cost approach is the correct method to value real estate that distinctly separates the land value from the value of improvements. This approach operates by estimating the cost to replace or reproduce the improvements on the property and then adding the value of the land, treating land as a separate entity.

In practice, under the cost approach, an appraiser first assesses the current value of the land as if it were vacant and available for its highest and best use. Then, they will estimate the depreciated value of any improvements (such as buildings or structures) on that land. This separation is crucial because land does not depreciate in the same way as improvements, which may suffer from physical deterioration, functional obsolescence, or economic obsolescence.

The other approaches serve different purposes. The market data approach analyzes recent sales of comparable properties to determine value based on market trends. The income approach, on the other hand, focuses on the income-generating potential of the property by examining rent and operating expenses to determine its overall profitability. Functional obsolescence refers to a property's loss in value due to design defects or outdated features but does not focus on separating land and improvements.

Therefore, the cost approach is unique in its detailed scrutiny of both land and improvements as