What are special purpose properties in real estate?

What are "Special Purpose Properties"?

Special purpose properties in real estate are those that are designed and built for a specific, often unique purpose, and their design or layout makes them suitable for only certain types of uses. Examples include schools, theaters, churches, hospitals, and gas stations. These properties are often challenging to repurpose for other uses without significant renovation and can be more difficult to appraise due to their unique nature and limited market demand.

Which Appraisal Approach is Typically Used for Special Purpose Properties?

The Cost Approach is most commonly used to appraise special purpose properties. This approach estimates the property's value by determining the cost to replace or reproduce the existing structure, minus depreciation, plus the land value. This method is preferred for special purpose properties because their unique features and limited market comparables make other approaches, like the Sales Comparison and Income Capitalization approaches, less effective or applicable.

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