A specialized manufacturing plant has no comparable sales in its region, but plants of the same type have sold in other parts of the country. Before relying primarily on the cost approach, what should the appraiser consider?
Correct Answer
A) Whether sales from a wider geographic market can provide useful evidence
Limited-market properties may require consideration of a wider geographic market, possibly national in scope, so out-of-region sales of the same property type may provide useful evidence before the appraiser leans on cost. The owner's historical cost is not value, unrelated local sales are not comparable, and business profits are not real property income.
Why This Is the Correct Answer
Option A is correct because limited-market properties may require consideration of a wider geographic market. Sales of the same plant type in other regions can show what buyers in that market pay and can test or support the cost indication.
Why the Other Options Are Wrong
Option B: Whether the owner's original construction cost can stand in for value
Option B uses the owner's original construction cost as a stand-in for value. Historical cost reflects past conditions and a particular owner's choices; it is not a measure of current market value.
Option C: Whether local sales of unrelated buildings can be adjusted to fit
Option C adjusts local sales of unrelated buildings to fit. Buildings with different uses are not truly comparable, and the large adjustments needed would make the indication unreliable.
Option D: Whether the income approach can use the owner's business profits
Option D uses the owner's business profits in the income approach. Business profits include returns to management and the enterprise, not just income attributable to the real property.
Few buyers, wider map
When a property has few buyers, its market spreads over a wider map. Look for sales where that kind of property actually trades.
How to use: Use this when a special-purpose property question says no local sales exist.
Exam Tip
For special-purpose properties, choose answers that widen the search for true market evidence over answers that rely on non-market figures.
Common Mistakes to Avoid
- -Limiting the comparable search to the local area for special-purpose property
- -Treating historical cost as current value
- -Capitalizing business profits as real property income
Concept Deep Dive
Analysis
The question tests how an appraiser broadens the data search for a special-purpose property before deciding that only the cost approach is supportable. Because the market for such properties can be regional, national or international, sales of the same type elsewhere may be the best market evidence available. The distractors substitute non-market or non-comparable data.
Background Knowledge
A limited-market property has relatively few potential buyers because of unique design or use, so local data are scarce. The relevant market may extend well beyond the local area, and the appraiser should search that wider market before concluding that only cost data are reliable.
Real-World Application
Appraising a food-processing plant in a rural county, an appraiser finds no local plant sales but locates three sales of similar plants in other states. She uses them to support the cost approach and explains the geographic differences in her reconciliation.
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