A special-purpose property has few relevant sales and no supported rental market. Reliable site, replacement-cost and depreciation inputs are available. Which approach is best supported here?
Correct Answer
C) The cost approach, with its supported inputs.
The stipulated reliable cost, site and depreciation evidence makes cost the most supportable approach here. A special-purpose label or absent sales alone does not establish reliable cost inputs or guarantee that a credible appraisal can be completed. Explain limitations and the treatment of other approaches.
Why This Is the Correct Answer
Option C is correct because the stated reliable site, replacement-cost and depreciation evidence makes the cost approach the most supportable here. Guidance notes that when reliable sales data are absent, cost and income assume greater importance, and that the cost approach is preferred when neither reliable sales nor income data are available. The appraiser should still explain limitations and how other approaches were treated.
Why the Other Options Are Wrong
Option A: Sales comparison, despite the weak sales evidence.
Option A, sales comparison despite the weak sales evidence, relies on the approach the facts say is poorly supported. Few relevant sales make it a weak basis for the conclusion here.
Option B: Income capitalization using unsupported imputed rent.
Option B, income capitalization using unsupported imputed rent, depends on rent the facts say has no supported market. Unsupported inputs produce an unreliable indication.
Option D: An equal average of supported and unsupported indications.
Option D, an equal average of supported and unsupported indications, dilutes the reliable cost result with unreliable ones. Weight should follow support, not be split evenly.
Weight follows the evidence
Look at which approach has reliable inputs in the facts, and give that approach the weight.
How to use: Use this when a question describes which data are strong and which are weak.
Exam Tip
Read the stated facts carefully; the question usually tells you which data are reliable. Do not pick an approach the facts describe as unsupported.
Common Mistakes to Avoid
- -Using sales comparison by habit despite weak sales evidence
- -Imputing rent without market support
- -Averaging supported and unsupported indications
Concept Deep Dive
Analysis
This question gives a special-purpose property with weak sales and no rental market, but reliable cost inputs. The task is to pick the approach best supported by the stated evidence. Weight follows the evidence that actually exists.
Background Knowledge
Special-purpose properties such as churches or schools often lack sales and rental data. When cost, site and depreciation inputs are reliably supported, the cost approach often carries the most weight for them.
Real-World Application
An appraiser values a small private school building with no recent school sales and no rental market. Using reliable cost data, a supported land value and market-based depreciation, she relies primarily on the cost approach and explains why the other approaches received little weight.
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