Which cost approach characteristic is generally considered a limitation?

The characteristic that is generally considered a limitation in the cost approach is related to cost estimation sensitivity. This refers to the method's reliance on the accuracy and variability of the cost data used for assessment calculations. In the cost approach, appraisers must estimate the current cost of reproducing or replacing an asset, which involves significant judgment and can be influenced by fluctuations in material costs, labor rates, and various market conditions. If the cost estimates are overly sensitive to these changes, the valuation can become less reliable and may lead to inaccuracies.

In contrast, the other characteristics are viewed as advantages or strengths of the cost approach. Immediate financial returns, accurate depreciation estimation, and high-quality comparable sales data are aspects that typically benefit the valuation process by providing clearer insights and supportive evidence when determining value. However, the sensitivity of cost estimations can introduce challenges, making it a recognized limitation in applying the cost approach effectively.