Humber/Ontario Real Estate Course 2 Exam Practice

Which principle is the cost approach based on when applied to resale property?

1. Objective value

2. Comparable market sales

3. Conformity

4. Depreciation calculations

5. Best-use analysis

6. Specialty use

The correct answer is: Objective value

The correct answer is A. Objective value. When the cost approach is applied to resale property, it is based on the principle of objective value. This approach estimates the value of the property by calculating the cost to replace it with a property of equal utility, as opposed to considering market conditions or comparable sales. The cost approach is particularly useful when there are no recent comparable sales available or when the property being appraised is unique and does not have many comparable properties. Options B, C, D, E, and F are not directly related to the cost approach when applied to resale property. Option B refers to the sales comparison approach, option C refers to the principle of conformity, option D refers to depreciation calculations, option E refers to best-use analysis, and option F refers to specialty use, all of which are not specifically associated with the cost approach in this context.