What is the cost approach primarily used for?

The cost approach is primarily used to estimate the value of a property by determining the cost to replace it, which is then adjusted for any depreciation that may have occurred. This method is particularly useful for valuing properties that are not frequently bought and sold in the market, such as special-purpose properties or new construction. By calculating the current cost of building a similar structure and factoring in depreciation, appraisers can arrive at a value that reflects the investment necessary to recreate the property today. This approach is grounded in the principle that the value of a property is influenced by the cost to replace it, ensuring that the valuation is rooted in tangible, quantifiable data related to construction and existing condition.

Other options focus on market trends, demand, and rental values, which align more closely with different valuation approaches rather than the cost approach itself. Thus, while those other aspects are important in the broader context of real estate analysis, they do not pertain specifically to the costing methodology used in property valuation.