What is the first step in the cost approach for property valuation?

In the cost approach for property valuation, the first step involves estimating the land value as if it were vacant and available for development. This step is crucial because it establishes a baseline for the overall property value by separating the value of the land from the value of any improvements (such as buildings) made on it. Understanding the land's value as a standalone entity allows an assessor to accurately assess how much the improvements contribute to the overall value of the property.

Estimating the land value first also helps in determining the total cost of the property, as this value will eventually be combined with the depreciated cost of the improvements to arrive at the final valuation. By starting with the land value, assessors can accurately represent the potential of the property market and its highest and best use, which is a critical factor in property assessments.

Other choices relate to subsequent steps in the valuation process. Estimating total depreciation, calculating the total cost new of improvements, and adding site value to the depreciated cost occur after establishing the land value. Thus, while they are important components of the overall approach, they do not represent the foundational first step that is essential for a comprehensive valuation.