In appraising a special purpose property with few sales and no rental market, which approach usually carries most weight?
Correct Answer
C) The cost approach less accrued depreciation
Why this is correct: For a special-purpose property with no active sales or rental market, the sales comparison and income approaches lack reliable data. The cost approach, estimating the cost to construct a substitute property less depreciation, becomes the primary, and often only, supportable method. Why the other choices are wrong: The sales comparison and income approaches cannot be reliably developed without market data. An average of approaches is not appropriate when some approaches are unsupported. Exam tip: When sales and income data are absent, the cost approach is the default, but depreciation estimation is critical.
Why This Is the Correct Answer
Why this is correct: For a special-purpose property with no active sales or rental market, the sales comparison and income approaches lack reliable data. The cost approach, estimating the cost to construct a substitute property less depreciation, becomes the primary, and often only, supportable method. Why the other choices are wrong: The sales comparison and income approaches cannot be reliably developed without market data. An average of approaches is not appropriate when some approaches are unsupported. Exam tip: When sales and income data are absent, the cost approach is the default, but depreciation estimation is critical.
More Reconciliation Questions
Reconciliation of the approaches to value is best described as which activity?
Why should the reconciliation address the quantity of evidence as well as its quality?
How long must a report be retained compared with the workfile?
What distinguishes an appraisal review from an appraisal?
An appraiser reconciles to a value at the top of the indicated range because the client needs that figure. What has occurred?
What does it mean that a value opinion must be reasonable rather than merely arithmetically derived?
What should the reconciliation section explain to the reader?
How do the content obligations of the two report options differ with respect to the information analyzed?
The three approaches indicate $480,000, $495,000 and $610,000. What should the appraiser do first?
Three approaches indicate $1.02 million, $1.05 million and $1.04 million. How should this be reported?
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