The principle that an informed purchaser would not spend more for a piece of real estate than the cost to purchase the land and the cost to construct a structure,provides the rationale for which of these valuation methods?

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Quizplus · Accepted Answer

The principle mentioned in the question refers to the Cost approach, which estimates the value of a property by considering the cost of its construction or replacement/reproduction, and adding the value of the land. This approach assumes that an informed buyer would not pay more for a property than the cost to reproduce or replace it. The Sales comparison approach compares the subject property with similar properties that have recently sold, and the Income approach estimates the value of a property based on its expected income. The Direct capitalization approach is a variation of the Income approach that applies a capitalization rate to the property's net operating income to estimate its value.

The Principle That an Informed Purchaser Would Not Spend More