A 24-lot residential subdivision tract is being valued as raw land. The finished lots are expected to sell at retail for $95,000 each, a total of $2,280,000. All remaining development costs (infrastructure, holding, marketing, and entrepreneurial incentive) are estimated at $1,050,000; this covers all required nonland costs and incentive without overlap, and timing is not considered. Separately, a recent bulk acreage sale of a comparable unimproved tract indicates $980,000. Which pairing correctly contrasts the subdivision development (developer's residual) indication with the bulk-sale indication?
Correct Answer
D) Subdivision residual $1,230,000; bulk indication $980,000
The undiscounted residual is 24 × $95,000 − $1,050,000 = $1,230,000. The separate bulk-sale indication is $980,000. They are distinct indications, not an instruction to average them. A complete development appraisal accounts for timing, absorption and model consistency.
Why This Is the Correct Answer
Option D is correct because the residual is 24 × $95,000 = $2,280,000 minus $1,050,000, which equals $1,230,000, while the bulk acreage sale separately indicates $980,000. Each figure belongs to its own method. A full development analysis would also account for timing and absorption, but timing is not considered here.
Why the Other Options Are Wrong
Option A: Subdivision residual $980,000; bulk indication $1,230,000
Option A reverses the two figures, listing the subdivision residual as $980,000 and the bulk indication as $1,230,000. The residual is $2,280,000 − $1,050,000 = $1,230,000, and the bulk sale indicates $980,000.
Option B: Both indications $1,230,000
Option B states both indications are $1,230,000. Only the subdivision residual is $1,230,000; the bulk sale separately indicates $980,000.
Option C: Both indications $2,280,000
Option C states both indications are $2,280,000, which is the gross sellout of 24 × $95,000 before deducting the $1,050,000 in development costs. The residual is $1,230,000 and the bulk indication is $980,000.
Sellout Minus Costs Equals Land
Add up what the finished lots will sell for, subtract every cost to get there, and the leftover is raw land. A bulk sale is a separate check, not part of the formula.
How to use: Use this to compute a developer's residual and keep it separate from comparison indications.
Exam Tip
Compute gross sellout first, then subtract all stated costs. When a choice pairs two figures, confirm each figure is matched to the correct method.
Common Mistakes to Avoid
- -Reporting gross sellout as land value without deducting development costs
- -Swapping the residual and bulk sale figures
- -Leaving out entrepreneurial incentive from development costs
Concept Deep Dive
Analysis
This question tests the subdivision development (developer's residual) method and its relationship to a separate bulk sale indication. The residual is total finished lot prices minus all remaining development costs and incentive. The bulk sale indication is given separately, and the two indications are distinct values, not to be averaged or swapped.
Background Knowledge
The subdivision development method estimates raw land value by subtracting total development costs, including entrepreneurial incentive, from projected gross sales of finished lots. A complete analysis discounts for the time needed to develop and sell the lots. A bulk sale of comparable acreage provides an independent sales comparison indication.
Real-World Application
An appraiser values a raw tract approved for 24 lots. A development model subtracting infrastructure, holding, marketing and profit from projected lot sales gives one indication, and a recent bulk acreage sale nearby gives another, which the appraiser reconciles.
More Land/Site Questions
How should an appraiser account for a site's access to public sewer compared with competing sites that require septic systems?
Which fact, if supported by competitive-market evidence, most directly supports a unit-price premium for an otherwise comparable site?
A rectangular site's frontage is doubled while its depth is halved, keeping area constant. What is the likely value effect in a retail district?
A downtown site's zoning height limit is reduced from six stories to three. Buyers in this market had been paying for six-story development potential. What effect on land value is most supportable?
A zoning change increases permitted density from four to eight units per acre. What is the likely effect on site value?
Using the allocation method, market evidence supports a typical land-to-total-property-value ratio of 28% for similar improved properties in the subject’s location. An improved comparable sold for $825,000. What land (site) contribution is indicated by applying that ratio?
An appraiser is valuing a vacant site near a landfill. A similar vacant site that is not affected by the landfill sold for $480,000. Paired land sales indicate that proximity to the landfill lowers site prices by $70,000. No other adjustments apply. What is the indicated value of the subject site?
An appraiser is extracting site value from a $600,000 cash sale. The seller's records show an original construction cost of $250,000 and a depreciated book value of $110,000. The appraiser estimates current replacement cost new at $400,000 and accrued depreciation from all causes at $100,000. What is the indicated site value?
Three parcels assembled under single ownership (standard appraisal guidance assemblage) support separate as-is values of $290,000, $340,000, and $250,000. After assemblage for a higher-utility use, the combined site is valued at $1,050,000. Assemblage costs (demolition, legal, holding, and related) total $55,000. What is the indicated net plottage (plottage increment after assemblage costs)?
A comparable commercial site with 65 front feet sold for a cash-equivalent price of $585,000. Per standard appraisal guidance, sale price per front foot is a vacant-land unit of comparison when frontage is a primary value determinant. The subject site has 72 front feet and is otherwise similar. What indicated land value does the front-foot unit support before other adjustments?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam
Previous Question
Site improvements cost $40,000 to install but add only $25,000 to what buyers will pay. What is the $25,000 called?
Next Question
Three contiguous parcels used separately support market values of $165,000, $210,000, and $155,000. Assembled under single ownership for a higher-utility use (standard appraisal guidance assemblage), the combined site supports a market value of $595,000. Cash assemblage costs (closing, legal, and necessary demolition) total $80,000. What net incremental (plottage) value remains after those assemblage costs?