What is often difficult to estimate in the cost approach to appraisal?

In the cost approach to appraisal, accrued depreciation is particularly challenging to estimate due to the various factors that influence a property's value over time. Accrued depreciation accounts for the loss of value of a property resulting from wear and tear, obsolescence, and other factors that might reduce its worth compared to new construction.

Estimating accrued depreciation requires a deep understanding of construction quality, the remaining useful life of different components of the property, market conditions, and how these elements interact. Additionally, different types of depreciation—physical, functional, and external—must be considered separately, each requiring different methodologies for accurate assessment. Because these components can vary widely based on individual circumstances and judgments, it makes estimating accrued depreciation a complex task.

On the other hand, while replacement cost and lot value have their challenges, they tend to be more straightforward to ascertain using market data, construction costs, and land values. Market trends can also be estimated through research, but accrued depreciation's subjective nature makes it the most difficult aspect within the context of the cost approach.