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An Empirical Analysis of the Reliability and Precision of the Cost Approach in Residential Appraisal

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Abstract

Many articles and books have discussed the limitations of the cost approach to estimate market value or real estate. This article is the first to empirically measure the predictive ability of the cost approach to estimate value of single-family houses. Three hypotheses have been tested. The results indicate that the cost approach did not provide unbiased estimates of value, and the sales comparison approach estimated value more precisely. Additionally, cost approach precision was not significantly different for newer or older properties.

Suggested Citation

  • Mark G. Dotzour, 1990. "An Empirical Analysis of the Reliability and Precision of the Cost Approach in Residential Appraisal," Journal of Real Estate Research, American Real Estate Society, vol. 5(1), pages 67-74.
    • Handle: RePEc:jre:issued:v:5:n:1:1990:p:67-74
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    1. Roger E. Cannaday & Mark A. Sunderman, 1986. "Estimation of Depreciation for Single‐Family Appraisals," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 14(2), pages 255-273, June.
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    Cited by:

    1. Schulz, Rainer & Staiber, Markus & Wersing, Martin & Werwatz, Axel, 2008. "The accuracy of long-term real estate valuations," SFB 649 Discussion Papers 2008-019, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    2. Alexander N. Bogin & Jessica Shui, 2020. "Appraisal Accuracy and Automated Valuation Models in Rural Areas," The Journal of Real Estate Finance and Economics, Springer, vol. 60(1), pages 40-52, February.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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