Florida Real Estate Broker ExaminationValuation and Market AnalysisEasy
A licensed appraiser is tasked with valuing a unique, custom-built mansion with no recent comparable sales in the immediate vicinity. The mansion features specialized, high-end materials and construction techniques. Which appraisal approach would be most appropriate for determining the property's value?
- AGross Rent Multiplier Approach
- BSales Comparison Approach
- CIncome Capitalization Approach
- DCost-Depreciation Approach
Show answer & explanationAnswer & explanation
Correct answer: D. Cost-Depreciation Approach
The Cost-Depreciation Approach is most suitable for unique properties where comparable sales are scarce, as it focuses on the cost to replace the structure and accounts for depreciation.
Why the other options are wrong
- A. The Gross Rent Multiplier Approach is a simplified income approach, not suitable for non-income-producing or unique properties.
- B. The Sales Comparison Approach relies on recent comparable sales, which are unavailable for this unique property.
- C. The Income Capitalization Approach is used for income-producing properties, which a custom mansion typically is not.
Cost-Depreciation Approach
An appraisal method that estimates the value of a property by calculating the cost to build a new one, then subtracting depreciation.
- Best for new or unique properties
- Calculates replacement cost less depreciation
- Often used when comparables are scarce
Memory trick: Costly custom homes need a careful calculation of construction.