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adjustments8 for various differences between the "comparables"
and the property being appraised. Estate of Spruill v.
Commissioner, 88 T.C. 1197, 1229 n.24 (1987). This Court has
found the sales comparison method to be a reasonable one and has
used it in the past. See, e.g., Wolfsen Land & Cattle Co. v.
Commissioner, 72 T.C. 1, 19 (1979). Additionally, we have found
that it is generally the most reliable method of valuation.
Estate of Spruill v. Commissioner, supra at 1229 n.24.
The cost approach is based on the principle of substitution.
The cost approach derives the value of a property by estimating
the reproduction or replacement cost of the improvements,
deducting therefrom the estimated depreciation, and then adding
the market value of the land. This approach estimates value
based on the assumption that a prudent person will not pay more
for a property than it would cost to acquire a site and erect a
comparable structure (less accrued depreciation). This approach
is especially applicable to new or nearly new structures when the
land value is also reliable. The major limitation of this
approach is that in properties that are several years old it is
often difficult to precisely estimate the accrued depreciation
8 Positive adjustments are made to comparable properties
that are inferior in some fashion to the subject property;
negative adjustments are made to comparable properties that are
superior in some fashion to the subject property.
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