Ace the Arizona Real Estate Exam 2025 – Unlock Your Property Dreams!

The method that evaluates properties based on the cost of replacing improvements minus depreciation is the cost approach. This approach is particularly useful in situations where there are few comparable sales or when the property is new or has unique features that make direct comparisons challenging.

In the cost approach, appraisers calculate the current cost to replace or reproduce the building improvements, then subtract any depreciation that has occurred due to factors such as physical wear and tear or market changes. This method provides a clear framework for assessing value based on the tangible costs associated with constructing a similar property in current terms, which can be particularly informative for properties like schools, hospitals, or other types of specialized real estate where income generation may not be the primary focus.

The other methods mentioned focus on different principles: the market approach relies on comparing recent sales of similar properties, the income approach emphasizes the potential income generation of the property, and the comparative sales approach also centers around analyzing sales data but does not specifically focus on replacement costs and depreciation. Each approach has its unique applicability, but when evaluating value based on the cost of replacement minus depreciation, the cost approach is the most fitting.