- CFA Exams
- CFA Exam: Level II 2021
- Study Session 15. Alternative Investments
- Reading 39. Private Real Estate Investments
- Subject 5. The cost and sales comparison approaches to valuation

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**CFA Practice Question**

David Stoyer is valuing a 400,000 square feet building. What is the value of his property using the sales/square ft technique assuming that the table below shows all recent sales of comparable properties in his proximate area?

B. $20,374,000.

C. $20,000,000

A. $22,500,000.

B. $20,374,000.

C. $20,000,000

Correct Answer: B

Be careful of traps! This relatively straightforward question has several misleading answers. The correct answer requires a multiplication between the 400,000 square footage and the average sales/sq ft. In this problem, the average sales per square foot is 50.935. When this average is multiplied by 400,000 square feet, the valuation becomes $20,374,000. The answers of $20,000,000 and $25,000,000 are designed to trap candidates that select based on the same size (400,000) as the question. However, the correct answer should be based on the average, and not a specific property, per se.

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**User Contributed Comments**
5

User |
Comment |
---|---|

iceluke |
base it on average, not on a single property |

achu |
use ALL of the comparable sales items, not a 'perfect match' subset. |

Tatyana |
good question! |

Hervz |
And now I know! |

Mikehuynh |
Tricky question. The table just distracts my attention really. |