Certified Apartment Portfolio Supervisor (CAPS) Practice Exam - Module 2

Which valuation technique is not suited for properties with high historical significance?

1. Income capitalization

2. Cost approach

3. Sales comparison

4. Market approach

The correct answer is: Cost approach

The cost approach is considered the least suitable valuation technique for properties with high historical significance because it primarily focuses on the cost to replace or reproduce the property, taking into account the current market conditions and depreciation. Historical properties often possess unique attributes that cannot be adequately quantified through replacement costs. This method tends to undervalue properties with significant cultural or historical importance because it does not account for the intangible value these properties hold. Historical significance often translates into higher market demand that can be effectively captured through other valuation techniques, such as the income capitalization or sales comparison approaches, which can better reflect the property's unique characteristics and the market's willingness to pay for such distinctiveness. In contrast, the income capitalization method evaluates the potential income a property can generate, which is applicable for properties that might have historical significance yet still produce income. The sales comparison approach assesses the property based on recent sales of similar properties, making it more relevant for high-value historical properties that have active markets. The market approach offers insights based on prevailing market prices, aligning more closely with the value perception of properties deemed significant in a historical context.