A special-purpose property has no comparable sales and no comparable rents, but reliable cost and depreciation data. Which approach should receive greater weight?
Correct Answer
D) The cost approach
If there are neither comparable sales nor rents paid for comparable properties, the cost approach assumes greater weight.
Why This Is the Correct Answer
Option D is correct because if there are neither comparable sales nor rents paid for comparable properties, the cost approach assumes greater weight. Here the cost and depreciation data are reliable, so the cost approach has the strongest support. The other approaches lack the market data they depend on.
Why the Other Options Are Wrong
Option A: Sales comparison, by default for all properties
Option A favors sales comparison by default for all properties. There are no comparable sales here, so sales comparison has no reliable basis in this assignment.
Option B: Income capitalization, using the owner’s budget
Option B favors income capitalization using the owner's budget. With no comparable rents, an owner's budget is not market evidence and does not support a reliable income indication.
Option C: An equal average of all three approaches
Option C uses an equal average of all three approaches. Averaging in approaches that lack market data would give unsupported figures equal weight with the reliable cost indication.
No sales, no rents: cost
When neither comparable sales nor comparable rents exist, lean on the cost approach if its data are reliable.
How to use: Use this for special-purpose property weighting questions.
Exam Tip
Check which approaches have usable market data in the stem; the one with reliable data deserves more weight.
Common Mistakes to Avoid
- -Defaulting to sales comparison without comparable sales
- -Using owner budgets as market income evidence
- -Averaging approaches that lack data
Concept Deep Dive
Analysis
This question tests weighting when comparable sales and rents are unavailable. A special-purpose property may lack market data for sales comparison and income capitalization. With reliable cost and depreciation data, the cost approach assumes greater weight.
Background Knowledge
Special-purpose properties such as churches or schools often sell rarely and are seldom rented. The cost approach estimates value from the cost to build less depreciation, plus site value. It gains weight when market sales and rental data are lacking and cost data are reliable.
Real-World Application
An appraiser values a church with no recent comparable sales or rentals in the region. Reliable cost manuals and depreciation analysis are available. The appraiser gives the cost approach greater weight and explains the absence of market data for the other approaches.
More Reconciliation Questions
In a cost approach for an improved property, an appraiser estimates site value by sales comparison, allocation and extraction, then settles on one site-value figure before final reconciliation. How is this step best described?
An extraordinary assumption was reasonably supported, properly used and disclosed in an appraisal report. Later, the assumed information is found to be false. Which conclusion is best supported?
An otherwise applicable valuation approach cannot be developed reliably from the available data. The remaining scope can produce credible assignment results. What should the appraiser do?
May an appraiser use a hypothetical condition in any assignment?
An appraisal has a current effective date and permits an extraordinary assumption if its requirements are met. Which situation involves uncertain information rather than a fact known to be contrary to reality on that date?
Why must a report identify any real property interest that is being excluded from the value opinion?
Which review best helps explain divergent cost, sales-comparison and income indications?
Two value indications are $340,000 and $392,000. What is the difference as a percentage of the lower indication, rounded to one decimal place?
An unauthorized third party requests a lender-client’s report. No due-process or other permitted disclosure exception applies. How should the appraiser respond?
An appraiser proposes to assume there are no hidden defects. Which fact would characterize that assumption as extraordinary under the USPAP 2024 definition, rather than justify dismissing it as routine boilerplate?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam
Previous Question
Adjusted sale prices are $398,000, $404,000 and $431,000. The appraiser's indicated value is $402,000, below their $411,000 simple average. Which comment best explains the difference?
Next Question
Why must a report state the appraiser's opinion of the highest and best use where one was developed?