Michigan Real Estate Exam Practice Question
Which approach would allow an estimate of value if the construction cost per square foot is known?
Correct Answer: A
Rationale: The Cost Approach is the most suitable method for estimating value when construction costs per square foot are known. This approach calculates value based on the cost to replace or reproduce the property, factoring in land value and depreciation.
Option B, the Sales Comparison Approach, relies on analyzing comparable property sales, which does not directly utilize construction costs. Option C, the Income Approach, focuses on income generation potential and is ideal for investment properties, not for estimating value based on construction costs. Lastly, Option D, the Market Approach, is similar to the Sales Comparison Approach and also does not consider construction costs directly.
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