What is a Special-Purpose Property?
A special-purpose property is a building with unique characteristics that significantly limit its potential uses and appeal in the real estate market. These properties serve very specific needs and often require specialized configurations that make them suitable only for a narrow scope of functions. Examples include churches, theaters, schools, and public utilities.
Appraising Special-Purpose Properties
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Income Approach: When the special-purpose property generates income, this approach can be used. It involves estimating the present worth of future income generated by the property.
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Market Comparison Approach: If there are comparable sales, this method may be appropriate. It involves comparing the property to similar properties that have sold recently.
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Cost Approach: Applied when no income is generated and there are no comparable sales. This entails estimating the cost to replace the property minus the estimated depreciation.
Examples
- Churches: Not easily convertible to other uses due to architectural design and specific interior features.
- Theaters: Designed for specific acoustics and seating arrangements.
- Schools: Often have specialized rooms and layouts tailored to educational needs.
- Public Utilities: Facilities like water treatment plants and electrical substations have highly specific functions and structural requirements.
Frequently Asked Questions
Q: Can a special-purpose property be converted for general use?
A: Conversion is possible but often not economically feasible due to the substantial modifications required.
Q: How is a special-purpose property valued if no comparable sales data is available?
A: The cost approach is frequently used, which calculates the cost to rebuild the property minus depreciation.
Q: Are loans available for purchasing special-purpose properties?
A: Yes, but financing terms can be more restrictive, and lenders may require additional assurances due to the property’s limited marketability.
Q: How does zoning affect special-purpose properties?
A: Zoning laws can be a significant constraint as they may limit the types of permissible uses for the property.
Income Approach: A method used to appraise property based on the income it generates.
Market Comparison Approach: An appraisal method that compares the subject property to similar properties that have recently sold.
Cost Approach: Appraisal method that assesses property value by estimating the cost to replace the property minus depreciation.
Online Resources
References
- Fisher, Jeffrey D. “Income Property Valuation.” Dearborn Real Estate Education, 2016.
- The Appraisal of Real Estate, 14th Edition, Appraisal Institute, 2013.
- Michael S. Miller, “Special-Purpose Properties,” The Appraisal Journal, 2020.
Suggested Books for Further Study
- Appraisal Institute, “The Appraisal of Real Estate,” 14th Edition.
- Boyce, Lee W. “Special Use Properties: Industrial, Infrastructural, Institutional, Recreational.” Wiley, 2018.
Real Estate Basics: Special-Purpose Property Fundamentals Quiz
### A special-purpose property typically has which characteristic?
- [x] Limited uses and marketability
- [ ] General wide-ranging uses
- [ ] High turnover rate
- [ ] Similar architectural style as residential property
> **Explanation:** Special-purpose properties have limited uses and marketability due to their unique features and specific functions.
### When might the cost approach be necessary for appraising a special-purpose property?
- [x] When the property generates no income and there are no comparable sales
- [ ] When the property generates significant income
- [ ] When there are many comparable sales
- [ ] When a market trend analysis is available
> **Explanation:** The cost approach is used when the property generates no income and there are no comparable sales to rely on for valuation.
### Which type of property is considered a special-purpose property?
- [ ] Residential homes
- [ ] Office buildings
- [x] Theaters
- [ ] Retail stores
> **Explanation:** Theaters are considered special-purpose properties due to their unique designs and limited uses.
### Why might financing terms be more restrictive for special-purpose properties?
- [x] Due to their limited marketability
- [ ] Because they have high resale value
- [ ] Because they attract numerous buyers
- [ ] Because they are easily replaceable
> **Explanation:** Financing terms can be more restrictive because special-purpose properties have limited marketability and may not be as easily sold or repurposed as more general property types.
### Can a special-purpose property be valued using the income approach?
- [x] Yes, if it generates income
- [ ] No, it cannot be valued this way
- [ ] Only in commercial districts
- [ ] Only for the first two years of operations
> **Explanation:** If a special-purpose property generates income, the income approach can be used for valuation.
### What is an example of a special-purpose property?
- [ ] An apartment building
- [x] A church
- [ ] A detached house
- [ ] A corporate office
> **Explanation:** A church is an example of a special-purpose property due to its unique design and specific functionality.
### What is often involved in the cost approach for appraising special-purpose properties?
- [x] Estimating the cost to rebuild the property minus depreciation
- [ ] Valuation based on stock market trends
- [ ] Comparing sales of similar residential properties
- [ ] Analysis based on the property's rental history
> **Explanation:** The cost approach typically involves estimating how much it would cost to replace the property, subtracting any depreciation.
### Can zoning laws impact special-purpose properties?
- [x] Yes, significantly
- [ ] No, zoning laws are unrelated
- [ ] Only in rural areas
- [ ] Only during property transfer
> **Explanation:** Zoning laws can significantly impact the permissible uses of a special-purpose property, potentially limiting what it can be used for.
### Which appraisal approach is least likely used when there are many recent comparable sales of similar properties?
- [x] Cost approach
- [ ] Market comparison approach
- [ ] Income approach
- [ ] Direct capitalization method
> **Explanation:** When there are many recent comparable sales, the market comparison approach becomes more viable than the cost approach.
### How often are special-purpose property assessments standardized across regions?
- [ ] Always
- [ ] Frequently
- [x] Rarely
- [ ] Never
> **Explanation:** Special-purpose property assessments are rarely standardized due to their unique characteristics and specific local market conditions.
