CFA Level I · CFA Level I Exam · Real Estate and Infrastructure
Which valuation approach is most likely to be the most appropriate for a newly built, specialized property with few comparable sales and no rental income?
The cost approach is most appropriate. It values land plus the cost to replace the building less depreciation, so it does not require rental income or comparable sales. It suits new or specialized properties, where depreciation is small and comparable transactions are scarce.
- ACost approachCorrect
- BIncome approach
- CSales comparison approach
Explanation
With no income and few comparables, the cost approach, which estimates land value plus replacement cost less depreciation, works best, particularly for new buildings with little depreciation. The income approach needs rents and the sales comparison approach needs comparables.
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