Entrepreneurial incentive is best supported by:
Correct Answer
A) Market evidence of what developers require to build
Why this is correct: Entrepreneurial incentive is the amount a developer expects to receive for the risk and effort of developing a property. Like all cost approach inputs, it must be supported by market evidence, such as developer interviews, feasibility studies, and comparable project data. Therefore A is correct. Why the other choices are wrong: B, the appraiser's customary percentage for all assignments, is an unsupported convention; a fixed percentage applied everywhere does not reflect the specific market. C, the actual profit the current owner realized, is not market support because the owner's profit may reflect unique circumstances or poor management. D, a figure published by the local building department, is not a market source; building departments do not publish entrepreneurial incentive data. Market evidence is the only defensible basis. Exam tip: On the cost approach, every input, including entrepreneurial incentive, must be market-derived. Ask yourself: 'What would a developer expect in this market?'
Why This Is the Correct Answer
Why this is correct: Entrepreneurial incentive is the amount a developer expects to receive for the risk and effort of developing a property. Like all cost approach inputs, it must be supported by market evidence, such as developer interviews, feasibility studies, and comparable project data. Therefore A is correct. Why the other choices are wrong: B, the appraiser's customary percentage for all assignments, is an unsupported convention; a fixed percentage applied everywhere does not reflect the specific market. C, the actual profit the current owner realized, is not market support because the owner's profit may reflect unique circumstances or poor management. D, a figure published by the local building department, is not a market source; building departments do not publish entrepreneurial incentive data. Market evidence is the only defensible basis. Exam tip: On the cost approach, every input, including entrepreneurial incentive, must be market-derived. Ask yourself: 'What would a developer expect in this market?'
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