The Unit-comparison Cost Approach in Residential Appraisal

The cost approach has not received much attention in academic journals. However, this lack of attention is undeserved. Cost functions represent one side of the market and may constrain the form of hedonic equations and the type of grid used in the market approach. Of course, cost functions can play a role in appraisals. A theory of cost functions is developed in this chapter. This theory accomplishes several purposes. First, it provides a link between unit-in-place costs and cost comparisons using square footage. Second, it provides the foundation for developing an alternative, non-tabular approach to cost estimation.