On occasion, one will encounter a property which is so unusual that it cannot be valued by the comparable sales (or market data approach) or by capitalization of income. When that happens, the cost approach will be utilized.
In the cost approach, an appraiser values the property premised on the value of the land and then adds what it would cost to build a new structure. The value is based on reproduction costs less observed depreciation. All increment costs are also considered and added to the value. The cost approach is rarely used for real estate. Real property must constitute a “specialty” for the cost approach to be employed. A “specialty” has been defined as a building designed for a unique purpose. For a building to be a “specialty,” it must be truly unique so that only the owner would have use for it and the sole way to replace it would be by its reproduction.
When a property is of a kind seldom traded, it lacks a market price and there must accordingly be recourse to some other method of valuation. Kimball Laundry Co. v United States, 338 U.S. 1, 6 (1949). Courts have limited use of the reproduction cost method to properties considered “specialties.” Matter of Allied Corp. v Town of Camillus, 80 NY2d 351, 357. Specialty properties are those “that are uniquely adapted to the business conducted upon them or use made of them and cannot be converted to other uses without the expenditure of substantial sums of money.” Matter of Great Atl. & Pac. Tea Co. v Kiernan, 42 NY2d 236 (1977).
Courts have found specialty properties in various settings and valued them pursuant to the cost approach, including but not limited to:
- A plant nursery, including greenhouses and a private home, was found to be a specialty (County of Suffolk v C.J. Van Bourgondien, 47 NY2d 507 (1979))
- A social club was found to be a specialty (Club St. Agnelo Abate of Amsterdam v State of New York, 68 AD2d 264 (3d Dept 1979))
- A country club was found to be a specialty (Matter of Richmond County Country Club v Finance Administrator of the City of New York, 173 AD2d 532 (2d Dept 1991))
- An electric generating plant was found to be a specialty (Niagara Mohawk Power Corp. v Town of Bethlehem Assessor, 225 AD2d 841 (3d Dept 1996))
- A complex for a bus transportation facility was found to be a specialty (United Traction Co. v State of New York, 33 AD2d 1063 (3d Dept 1970))
- Noncommercial community service buildings were found to be a specialty (Matter of Rochester U.R. (Patchen Post Inc.), 45 NY2d 1 (1978))
- A funeral parlor and chapel were found to be a specialty (City of Rochester v Ryan and McIntee, 56 AD2d 714 (4th Dept 1977))
- A detergent manufacturing plant with silos, conveyors and mixers was found to be a specialty (Capece v State of New York, 43 AD2d 601 (3d Dept 1973))
- A laundry building was found to be a specialty (City of New Rochelle v Sound Corporation Corp., 30 AD2d 861 (2d Dept 1969))
- A saw mill was found to be a specialty (Clark v State of New York, 25 AD2d 893 (3d Dept 1996))
- Gasoline storage tanks were found to be a specialty (Frost v State of New York, 29 AD2d 898 (1968))
- A retail lumber yard was found to be a specialty (In re North Park Urban Renewal, 324 NYS2d 158 (Sup Ct. Nassau County))
- A drive-in theater was found to be a specialty (Dipson Realty Co. v State of New York, 39 AD2d 636 (4th Dept 1972))