A commercial property appraisal using the income approach shows a significant variance from the cost approach value. The building is 15 years old and well-maintained. What is the most likely explanation for this variance?
Correct Answer
B) There is external obsolescence affecting the property
External obsolescence, such as changes in the neighbourhood, economic conditions, or market demand, would cause the income approach to show lower values than the cost approach. Since the building is well-maintained, physical deterioration is unlikely, and external factors affecting rental income and property desirability are the most probable cause of the variance.
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A commercial property analysis shows three recent sales: $2.1M, $2.3M, and $1.9M for similar properties. However, the $1.9M sale was a distressed sale due to foreclosure. For valuation purposes, how should this data be treated?
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A commercial property appraiser is reconciling three different approaches that yielded the following values: Direct Comparison $2,100,000, Cost Approach $2,400,000, Income Approach $1,950,000. Given that this is an income-producing office building in a market with limited sales but strong rental data, which approach should receive the greatest weight in the final value estimate?