Which approach would most likely be used to evaluate a unique property, such as a historical building?

The cost approach is particularly suitable for evaluating unique properties, such as historical buildings, because it provides a method for estimating the value based on the costs incurred to reproduce or replace the property. This approach takes into account the current costs of construction, adjusting for depreciation and considering any historical significance or unique features that may not be present in more conventional properties.

In situations with unique properties, market comparisons can be challenging due to a lack of similar sales, which makes the sales comparison approach less effective. Similarly, while the income approach can be valuable for properties that generate rental income, it is less applicable for a historical building that may not be used for income-generating purposes.

The residual approach, which estimates value based on the potential income the property could generate minus costs, is also not typically suited for unique properties, as it requires consistent and predictable income data, which may not be available for historical buildings.

Understanding these dynamics illustrates why the cost approach is often the preferred method for assessing the value of distinctive properties, ensuring that their unique characteristics and the investment to maintain or restore them are adequately accounted for.