In a scenario where a new owner-occupied retail building is under construction and market evidence shows that properties sell for significantly more than their cost to construct, which appraisal approach is likely to be given greater weight in the final reconciliation?

• A. Sales comparison approach
• B. Cost approach
• C. Income approach
• D. Hybrid approach

Answer: (A)

The main principle here is that market data drives value when available. If buyers are paying significantly more for similar completed properties than the cost to build them, the price actually observed in the market reflects what buyers value right now—location, desirability, and other market-driven factors.

The sales comparison approach captures that market behavior directly by looking at comparable properties that sold for prices above construction cost. It shows the premium the market is assigning to the property type or location, which is exactly what value represents in this scenario.

The cost approach focuses on the cost to reproduce or replace the building minus depreciation. In a situation where the market assigns a premium well above cost, the cost approach can understate value because it doesn’t reflect that willingness to pay. The income approach relies on anticipated income from leasing or operations; with owner-occupied property under construction, there isn’t a strong, reliable income stream to base value on, so it is less informative here. A hybrid approach isn’t necessary when market data clearly indicate how value is being set.

Therefore, the sales comparison approach should be given the greater weight in the final reconciliation, as it best reflects current market sentiment and the premium buyers are willing to pay.