Which approach to property valuation would be most appropriate for a newly constructed custom home in an area with few recent sales?
Correct Answer
D) Cost approach
The cost approach is most suitable when there are insufficient comparable sales and the improvements are relatively new. This approach calculates value based on land value plus the cost to construct the improvements, minus any depreciation.
Why This Is the Correct Answer
The cost approach is most appropriate because it calculates value by adding land value to the cost of constructing the improvements, minus depreciation. For a newly constructed custom home, construction costs are readily available and current, depreciation is minimal, and the method doesn't rely on comparable sales data. This approach aligns with appraisal standards under provincial real estate legislation and provides a reliable valuation method when market data is insufficient.
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