A conservation easement permanently limits development on a parcel. How does this affect site value?
Correct Answer
A) It reduces value by restricting highest and best use
Why this is correct: A conservation easement restricts development rights, limiting the property's highest and best use. This reduction in development potential typically lowers the market value of the land compared to its unrestricted state. Why the other choices are wrong: 'It increases value through the tax deduction gained' is incorrect; any tax benefit is personal to the donor and does not increase the property's market value. 'It leaves value unchanged, being a private matter' is false; an easement is a recorded encumbrance that affects marketability and value. 'It requires the parcel be valued as though unrestricted' is wrong; the appraisal must reflect the actual restricted property interest. Exam tip: Value the property *as encumbered* by the easement. Valuing it as unrestricted would be a hypothetical condition requiring explicit disclosure.
Why This Is the Correct Answer
Why this is correct: A conservation easement restricts development rights, limiting the property's highest and best use. This reduction in development potential typically lowers the market value of the land compared to its unrestricted state. Why the other choices are wrong: 'It increases value through the tax deduction gained' is incorrect; any tax benefit is personal to the donor and does not increase the property's market value. 'It leaves value unchanged, being a private matter' is false; an easement is a recorded encumbrance that affects marketability and value. 'It requires the parcel be valued as though unrestricted' is wrong; the appraisal must reflect the actual restricted property interest. Exam tip: Value the property *as encumbered* by the easement. Valuing it as unrestricted would be a hypothetical condition requiring explicit disclosure.
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Previous Question
A developer plans a 36-lot residential subdivision on raw land. Each lot is expected to sell for $85,000. Total development costs (excluding land) are $1,420,000, including $220,000 for entrepreneurial incentive. The developer requires a 12% annual yield on invested capital over a 3-year development period. Using the subdivision development method, what is the maximum price the developer should pay for the land if all lots sell at the projected price and timing?
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