What key components does the cost approach include?

The cost approach is a valuation method used in real estate that estimates the value of a property by considering two primary factors: the cost to replace or reproduce the property and the depreciation that may have occurred since it was built.

The correct components of the cost approach are square footage, replacement cost, and depreciation. Square footage provides a physical measurement that is essential in determining the property's size and how it compares to similar properties. Replacement cost refers to the current cost to construct a similar property using modern materials and standards. Depreciation accounts for any decrease in the property's value over time due to various factors such as wear and tear, outdated features, or external factors affecting the property’s desirability.

Market value and assessments relate to overall property value but do not specifically define the cost approach. Property taxes and insurance costs, while important in real estate considerations, are not components of the valuation method itself. The income approach and capitalization rate are different methods used to assess property value based on income generation rather than replacement costs. Therefore, the focus on square footage, replacement cost, and depreciation accurately encapsulates the fundamental elements of the cost approach.