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First, the costs that would be incurred by constructing a comparable new building as of the valuation date are determined – based on standardized construction costs per square meter of gross floor area.
From this new-build value, a depreciation for age is deducted, which results from the ratio of the building's age to its total economic useful life, as well as, if applicable, discounts for maintenance backlog.
The preliminary cost value determined in this way is adjusted to the actual regional market level using a market adjustment factor (Sachwertfaktor), since pure construction costs alone rarely correspond to actual market conditions.
The standard construction costs (Normalherstellungskosten) are regularly updated by the Federal Statistical Office (Statistisches Bundesamt) or the expert committees (Gutachterausschuss) and take into account construction price developments as well as different equipment standards.
The cost approach is primarily used when neither sufficient comparable prices nor reliable income data are available, for example in the case of owner-occupied single-family homes in rural locations.