CFA Practice Question
Joan and John Jett are considering the purchase of a piece of property down by Lake Annawattapottamee. The house was designed to fit the unique geographic features of this remote setting. The property appraisal most appropriate for valuing this property would most likely be:
A. the income approach.
B. the comparative sales approach.
C. the cost approach.
Explanation: Due to the unique features of this property, the cost approach would be most appropriate.
User Contributed Comments 8
| User | Comment |
|---|---|
| danlan | How about A? |
| dimos | Well danlan, I also pick A but now I assume that is difficult to estimate here the market capitalization rate. Still I am not sure... |
| samco | It's C because the geographic location is unique so you the market capitalization is hard to define in relative terms. So use the cost approach. |
| labsbamb | why not B? Compare sell of same property in same area to figure out the value of the house. |
| Shelton | B is the first one needs to be eliminated since the house has the UNIQUE geographic features. |
| gazza77 | it cant be the cost approach as the geographical features are unique. Therefore since there is no more land with these features the cost is infinite. |
| sonerdem83 | if you want to change or replace the building you will confront with UNIQUE geograpic conditions which means extra construction costs. as far as remember definition of cost approach is also something like this. |
| shumwaya | - Income Approach is only for commercial or income producing properties. this one is residential therefore not a performing asset - Comp Approach is used to compare the asset to comparable properties, since this is unique it will not have any "like kind comparisons" therefore the comp approach is useless - Cost Approach, like mentioned the cost approach is the total cost of complete replacement of the asset. Best here because it is a unique residential. Unique commercial = income approach |