Which appraisal approach tends to establish the upper limits of property value?

The cost approach is the method that tends to establish the upper limits of property value. This approach evaluates a property's value based on the cost to replace or reproduce the improvements on the property, minus any depreciation. It is particularly useful for unique or special-purpose properties where comparable sales data may be limited.

In scenarios where there are no recent sales of similar properties, assessing the cost to build a similar structure provides a tangible maximum value, as a buyer is unlikely to pay more than what it would cost to create a replica of the property from scratch. This establishes a ceiling on value because it reflects what an investor would logically invest into the property without becoming over-extended.

In contrast, while the sales comparison approach relies on comparable sales to derive market value, it can indicate lower values if recent sales were lower than expected. The income approach focuses on the income-generating potential of a property, often leading to different valuations based on projected cash flows rather than replacement costs. The term "market approach" can refer to the sales comparison method, making it redundant in this context; therefore, it does not directly establish upper limits of value in the same manner the cost approach does.