Which of the following is one reason that construction lenders typically prefer the cost approach to valuation over the income approach?
A)The cost approach provides a more conservative estimate of value
B)The cost approach provides a more optimistic estimate of value
C)The cost approach is a good indication of the expected value of an income-producing property once construction is complete and it has been leased-up
D)The cost approach is a better estimate of actual market value of the project

Question

Which of the following is one reason that construction lenders typically prefer the cost approach to valuation over the income approach?
A)The cost approach provides a more conservative estimate of value 
B)The cost approach provides a more optimistic estimate of value 
C)The cost approach is a good indication of the expected value of an income-producing property once construction is complete and it has been leased-up 
D)The cost approach is a better estimate of actual market value of the project

Quizplus · Accepted Answer

Construction lenders typically prefer the cost approach to valuation over the income approach because it provides a more conservative estimate of value. This is because the cost approach values the property based on the cost to replace or reproduce the property, while the income approach values the property based on its potential income. In the case of a construction loan, the property has not yet been leased-up and therefore does not have a proven income stream, making the cost approach a better option for the lender.

Which of the Following Is One Reason That Construction Lenders