Property Valuation
The cost approach is MOST reliable for appraising:
AIncome-producing apartment complexes
BSpecial-use properties with few comparable sales, such as schools or churches✓ Correct
CSingle-family homes in active markets
DVacant land in rural areas
Explanation
The cost approach is most useful for special-use or unique properties that have few comparable sales and are not typically income-producing—such as schools, churches, hospitals, or government buildings.
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- When using the sales comparison approach, an appraiser makes adjustments to comparables to account for differences with the subject property. If a comparable has a feature the subject lacks, the adjustment to the comparable is:Property Valuation
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Key Terms to Know
Comparable Sales (Comps)
Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
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