Cost Approach

The cost approach values a property as the value of its land plus the cost to build the improvements new, minus depreciation. It is one of the three appraisal approaches, alongside sales comparison and income. It ignores rent entirely, which makes it the opposite end of the scale from a gross rent multiplier.

The cost approach works best for new construction and for special-purpose buildings that rarely sell or rent, such as churches or schools. For an ordinary rental, the income a property produces and what similar rentals sell for usually say more about value than what it would cost to rebuild.

The two methods can still inform each other. When a rental's GRM-based value sits far below its land and construction cost, new competing rentals are unlikely to be built nearby, which supports rents over time. When the GRM value sits well above rebuild cost, new supply becomes profitable and future rents face more competition.

Further reading: Cost Approach on Wikipedia.