PSI Oklahoma Real Estate Practice Test

If a property has no monthly income and no comparable properties in the market, which appraisal method would most likely be used?

1. Market value approach

2. Income approach

3. Cost approach

4. Comparative market analysis

The correct answer is: Cost approach

The cost approach is the most appropriate appraisal method in this scenario because it is specifically useful for properties that lack income generation and comparable sales data. This method calculates the value of a property based on the cost to replace or reproduce the structure, minus any depreciation. When a property has no monthly income—meaning it is not generating rental income—and there are no comparable properties available for a market value analysis, the cost approach allows appraisers to derive a value based on the intrinsic value of the materials and labor that would be needed to build a similar structure. This method is particularly relevant for unique properties or those located in areas where few comparable sales occur. In contrast, other methods like the market value approach rely on the presence of comparable sales to establish value, while the income approach focuses on properties that generate rental income. A comparative market analysis, similarly, would be ineffective in the absence of relevant comps. Thus, the cost approach emerges as the logical choice in the outlined circumstances.