Texas Property Tax Consultant Practice Exam

Which valuation approach utilizes physical attributes of the property?

1. Income approach

2. Cost approach

3. Sales comparison approach

4. Market comparison approach

The correct answer is: Cost approach

The cost approach is a valuation method that heavily relies on the physical attributes of the property. In this approach, an appraiser estimates the cost to replace or reproduce the property, taking into consideration its current physical condition and any unique characteristics it possesses. This includes factors such as the square footage, the materials used in construction, the design of the structure, and any improvements made to the property. The rationale behind using the cost approach lies in its focus on the tangible aspects of a property, making it particularly useful for new constructions or unique properties where comparable sales data might not be readily available. By accurately assessing the physical attributes and estimating the replacement costs, the cost approach provides a solid foundation for understanding the value of the property based on its inherent characteristics. In contrast, other valuation methods either center on the income potential of the property (income approach) or compare the property to similar properties that have recently sold (sales comparison approach and market comparison approach), which do not place as much emphasis on the physical attributes. Thus, the cost approach stands out as particularly suited for scenarios where physical characteristics are paramount in determining value.