A special-purpose property has reliable site, cost and depreciation evidence, but no useful competitive sales or rental evidence. Which approach is best supported by these facts?
Correct Answer
B) Cost, with its inputs and limitations explained.
A special-purpose label does not dictate cost reliance or rule out a different highest and best use. Here reliable cost/site/depreciation and weak sales/rental evidence support cost. Reconcile applicability and support; absence of sales alone would not prove reliable cost inputs.
Why This Is the Correct Answer
Option B is correct because in the absence of reliable sales data, the cost and income approaches gain importance, and here no useful rental evidence exists for an income approach. The reliable site, cost and depreciation evidence supports the cost approach, with its inputs and limits disclosed.
Why the Other Options Are Wrong
Option A: Sales comparison, despite no relevant sales.
Option A relies on sales comparison despite no relevant sales. An approach without relevant comparable sales lacks the data needed to support a credible indication.
Option C: Income from an assumed rent, to create a third approach.
Option C builds an income approach from an assumed rent just to have a third approach. Without rental evidence the rent would be unsupported, and approaches are developed for credibility, not to reach a count.
Option D: A different use, without legality or feasibility analysis.
Option D values a different use without legality or feasibility analysis. A change in use must be supported by highest and best use analysis, which this option skips.
Follow the Data
Give weight to the approach with the best evidence. No sales and no rents point toward cost, if cost inputs are reliable.
How to use: Use this when a question describes which kinds of market data exist.
Exam Tip
Choose the approach that the stated facts actually support, and be wary of answers that invent data to fill a gap.
Common Mistakes to Avoid
- -Developing an approach with no supporting data just to have three approaches
- -Assuming a special-purpose label always requires the cost approach
- -Changing the use without highest and best use analysis
Concept Deep Dive
Analysis
This question tests selection of the most supported approach when market data are limited. With reliable site, cost and depreciation evidence but no useful sales or rental data, the cost approach is best supported. Its inputs and limitations still need to be explained.
Background Knowledge
Special-purpose properties such as churches or schools often have few sales and little rental data, which can make the cost approach the most reliable indication. The label alone does not dictate the approach; the quality of the available evidence does.
Real-World Application
An appraiser values a purpose-built religious facility with no recent comparable sales and no rental market. She develops the cost approach with supported land value and depreciation and explains its limitations in the report.
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