Marcy is appraising a new owner-occupied retail building under construction, and market-based evidence shows these 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. Replacement Cost

Answer: (A)

When the market clearly shows buyers are paying more for a property than it costs to build, the value is driven by current demand and what buyers are willing to pay. The Sales Comparison Approach uses actual sale prices of comparable properties to estimate value, so it directly reflects this market behavior. If comparable sales for similar owner-occupied retail buildings under construction are selling at a premium over construction cost, those transactions provide the most relevant signal of value for the subject, and they should carry more weight in the final reconciliation.

The other approaches have limitations here. The Income approach relies on existing or projected cash flows, which isn’t applicable to a building under construction that’s not yet generating income. The Cost or Replacement Cost approach estimates how much it would cost to reproduce the property today, but it doesn’t capture the premium buyers are willing to pay in the market, which is what the sale prices of comps reveal. Therefore, the Sales Comparison Approach is the best guide to value in this scenario.