Cost Approach

CFA Level II Alternative Investments
#1

An appraiser who wishes to value an unusual property is most likely to estimate the value of the property using the:

A) income approach. B) cost approach. C) sales comparison approach.

Your answer: B was incorrect. The correct answer was C) sales comparison approach.

Three main methods are used by appraisers to estimate value: cost, income, and sales comparison. The cost approach is based on replacement cost, and is usually used for unusual properties for which comparable market prices are not available. The sales comparison approach estimates a property’s value based on what comparable properties are selling for. The income approach uses net operating income to value a property.

The answer is correct and even the explanation. It just there might be an error.

Thank you any feedback is appreciated.

#2

I don’t think there’s a correct answer to this question, unless the question includes a definition of an “unusual” property.

#3

Yeah that’s obviously a wrong answer and correct explanation. According to the curriculum on p.45 “The cost approach is typically used for unusual properties or those with specialized use for which market comparables are difficult to obtain. The sales comparison approach is most commonly used for single-family homes, where income is not relevant and sales data for reasonable comparables is available.”

#4

Yes thats what I thought Lili_ thanks … on the other hand bloodline what do you mean by a definition inclusion of ‘unusual’?