A special-purpose property has no useful comparable sales or supported rental evidence, but reliable site, replacement-cost and depreciation inputs are available. What is the best-supported reconciliation?
Correct Answer
A) Rely primarily on cost and explain the limits of the other approaches.
Reliable cost, site and depreciation evidence can support primary reliance on cost in this scenario. The absence of comparable sales alone would not establish that cost is reliable. Special-purpose property still requires an appropriate scope and adequate evidence; imputed rent cannot be invented to fill a gap.
Why This Is the Correct Answer
Option A is correct because reliable site, replacement-cost and depreciation inputs support primary reliance on the cost approach when sales and rental evidence are not useful. In the absence of reliable sales data, the cost and income approaches assume greater importance, and only cost has reliable inputs here. USPAP also calls for stating the reasons for excluding approaches not developed, so the appraiser explains the limits of the others.
Why the Other Options Are Wrong
Option B: Prefer unsupported sales analysis simply because sales comparison is familiar.
Option B is wrong because preferring an unsupported sales analysis simply because sales comparison is familiar puts familiarity ahead of evidence. Without useful comparables, the sales analysis cannot produce a reliable indication.
Option C: Conclude that special-purpose properties cannot be appraised.
Option C is wrong because special-purpose properties can be appraised. The appraiser selects an appropriate scope and the approaches the evidence supports, which here is the cost approach.
Option D: Capitalize an invented rent figure without any market support.
Option D is wrong because capitalizing an invented rent figure without market support produces a result with no credible basis. Income inputs must come from evidence, not be made up to fill a gap.
No market, check cost
When sales and rents are missing for a special-purpose property, see whether reliable cost and depreciation data can carry the analysis.
How to use: Use this when a question describes a unique property with no comparable sales or rents.
Exam Tip
Answers that invent data or declare a property unappraisable are usually wrong. Look for the option that relies on supported evidence and explains the limits of the rest.
Common Mistakes to Avoid
- -Forcing a sales comparison analysis without truly comparable sales
- -Inventing a market rent to run an income approach
- -Concluding a unique property cannot be appraised
Concept Deep Dive
Analysis
This question involves a special-purpose property with no useful sales or rental evidence but reliable site, replacement-cost and depreciation data. In the absence of reliable sales data, the cost and income approaches assume greater importance, and here only cost is well supported. The best answer relies on cost and explains why the other approaches are limited.
Background Knowledge
Special-purpose properties, such as churches or specialized plants, often have few sales and no rental market. The cost approach can be the most useful approach in those cases when site value, replacement cost and depreciation are well supported. The lack of sales alone does not make cost reliable; its own inputs must be sound.
Real-World Application
An appraiser values a purpose-built fire station that has no comparable sales or rental market. Using documented land sales, current replacement cost data and a supported depreciation estimate, the appraiser relies on the cost approach and states why sales comparison and income were not developed.
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
Under 2024 USPAP Standards Rule 2-2(a)(xiii) (Appraisal Report content), when extraordinary assumptions or hypothetical conditions are used in an assignment, what must the report clearly and conspicuously do?
Next Question
On a Fannie Mae appraisal report form, the approach indications are $455,000 and $472,000, and the appraiser writes in the Reconciliation section that the value is 'between $455,000 and $472,000.' What is the problem?