How is value determined under the cost approach?

The determination of value under the cost approach primarily involves assessing the cost to replace or reproduce a property, taking into account various factors related to the specific characteristics of the property in question. Option C is correct because it emphasizes the importance of understanding the building classification and construction type when estimating costs. These elements significantly influence the overall value, as different types of construction entail varying costs for materials, labor, and quality standards.

The cost approach typically involves estimating the current cost of constructing a similar building with similar utility and then subtracting any depreciation that the property may have experienced. This process requires a deep understanding of the specific building type, its materials, and its use classification to accurately assess how much it would cost to replace the property in its current condition.

The other options do not align with the principles of the cost approach. Client expectations do not inform the structural cost of a property and are more subjective. Averaging neighboring property values relates more closely to the sales comparison approach rather than cost assessment, as it relies on market data rather than an intrinsic cost analysis. Using inflation rates over time is also not specific to the cost approach; while inflation can affect construction costs, the method of valuation itself does not directly rely on inflation but rather on current replacement costs and depreciation.