In the cost approach, the land value is determined separately from the value of the building constructed on it. The final market value is calculated by adding both values. This method is particularly common for owner-occupied single-family and two-family homes.
The land value is generally determined using the comparative sales approach, utilizing data from the local valuation committee. For calculating the building value using the cost approach, the construction or reconstruction costs of the building (cost value) are decisive. This analysis takes into account factors such as the size of the living space, the construction quality, and the presence and condition of outdoor facilities like garages, terraces, and gardens.
This methodology is based on the construction costs that would be incurred if the building were rebuilt in the same form. Experts can refer to specific tables to determine these construction costs. The general rule is that the construction costs per square meter for a terraced house are lower than for a detached single-family home.
The degree of wear and tear and the remaining useful life of the property are derived from this value. Experts generally assume a total useful life of 80 years for a residential property. For each year a building is in use, a depreciation of 1.25 percent of the assessed building value is deducted. For example: If the construction costs were calculated at €170,000 and the property is 15 years old, then the value is reduced by approximately €31,900 to €138,100.
This automatic depreciation can be "stopped" by comprehensively modernizing the property. For example, if a turn-of-the-century building is completely renovated and equipped with modern technology (heating system, windows, balconies), it essentially regains the quality of a new building.
Factors that reduce value, such as deferred maintenance or defects like damp basements, are also taken into account. Finally, the so-called market adjustment factor is applied in the asset-based valuation method. This serves to incorporate the demand for properties of this type. For example, a condominium in a small, economically disadvantaged town will have a lower market value than the same unit in a large city with high demand.
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