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Multiple Choice
For which type of property is the cost approach most commonly used when determining value?
A
Commercial properties in highly competitive markets
B
Special-purpose properties, such as schools or churches
C
Older residential homes in established neighborhoods
D
Vacant land with no improvements
Verified step by step guidance
1
Understand the cost approach: The cost approach is a valuation method that estimates the value of a property by determining the cost to replace or reproduce the property, minus depreciation, plus the value of the land.
Identify the types of properties where the cost approach is most applicable: The cost approach is commonly used for properties that are unique or have limited market comparables, such as special-purpose properties.
Analyze the options provided: Evaluate each type of property listed in the problem to determine if it fits the criteria for the cost approach. For example, special-purpose properties like schools or churches often lack comparable sales data, making the cost approach suitable.
Consider the characteristics of other property types: Commercial properties in competitive markets, older residential homes, and vacant land typically have sufficient market data for other valuation methods, such as the sales comparison or income approach.
Conclude that the cost approach is most commonly used for special-purpose properties, as these properties are unique and do not have many comparable sales in the market.