Question

If all appraisal methods are appropriate for use in valuing a particular property, there is a clear order of preference that real estate professionals adhere to. Which of the following depicts the preferred order, with the most preferable approach being listed first and the least preferable listed last?
A) Sales comparison approach, cost approach, income approach
B) Income approach, Sales comparison approach, cost approach
C) Cost approach, income approach, sales comparison approach
D) Sales comparison approach, income approach, cost approach

Answer 1

Answer:

D, sales comparison approach, income approach, cost approach

Explanation:

The cost approach of appraisal of real estate  is a method of valuation that is based on the belief that informed buyers of a property would not pay more than they would for a product of similar utility. But then the method of valuation expects a buyer to pay for a property the amount it would cost to build a similar property. Cost approach can be calculated by

Property Value = Land Value + (Cost New – Accumulated Depreciation).

Income approach of real estate appraisal is a method of valuation that establishes the fact that the fair value of a property should be calculated by the amount of money the property generates. It is calculated by dividing the net operating income by the capitalization rate.

Sales approach appraisal method is also a method of valuation of real estate that involves comparing a property that is up for sale with properties that has similar characteristics or features and that was sold recently. It uses the individual characteristics of the property to detrmine the value of the property.

Cheers.