Real Estate · Valuation and Market Analysis

Which approach to value is most useful for unique properties like churches or specialized buildings with no comparable sales?

Correct answer

Cost approach (estimate land value + depreciated reproduction or replacement cost of improvements)

  1. A Sales comparison approach
  2. B Cost approach (estimate land value + depreciated reproduction or replacement cost of improvements)
  3. C Income approach
  4. D Gross rent multiplier

Why this is the answer

The cost approach estimates value as land value plus the depreciated cost of reproducing or replacing the improvements. It is most useful for unique properties (churches, schools, museums, special-use buildings) where there are few or no comparable sales. It is also a common approach for new construction. The three classic appraisal approaches: (1) Sales comparison — best for residential homes with many comparable sales; (2) Income approach — best for income-producing investment properties; (3) Cost approach — best for unique or new construction. A skilled appraiser uses all three approaches when possible and reconciles them, weighting each by its reliability for the specific property. The cost approach involves estimating physical depreciation, functional obsolescence, and external obsolescence.
Source: Real Estate Principles, Approaches to Value