A percolation test fails on a rural site with no public sewer. What is the effect?
Correct Answer
B) The site's development potential is impaired
Why this is correct: A failed percolation (perc) test indicates the soil cannot properly absorb septic effluent. Without a public sewer connection, this means a residential septic system cannot be installed, making residential development physically impossible. This severely impairs the site's development potential and highest and best use, lowering its value. Why the other choices are wrong: 'The site is worth more due to its scarcity' is wrong; impairment reduces value. 'The site must be valued as agricultural land' is wrong; other non-residential uses may be possible. 'The test has no bearing on the site's value' is wrong; it directly affects utility and use. Exam tip: Failed perc test = no septic = no residential development (without sewer). This is a key 'physically possible' test for HBU.
Why This Is the Correct Answer
Why this is correct: A failed percolation (perc) test indicates the soil cannot properly absorb septic effluent. Without a public sewer connection, this means a residential septic system cannot be installed, making residential development physically impossible. This severely impairs the site's development potential and highest and best use, lowering its value. Why the other choices are wrong: 'The site is worth more due to its scarcity' is wrong; impairment reduces value. 'The site must be valued as agricultural land' is wrong; other non-residential uses may be possible. 'The test has no bearing on the site's value' is wrong; it directly affects utility and use. Exam tip: Failed perc test = no septic = no residential development (without sewer). This is a key 'physically possible' test for HBU.
More land-or-site-valuation Questions
Under which condition is the land residual technique most applicable?
What is the appraiser's obligation when a site's legal description does not match its apparent physical boundaries?
Why can the same physical parcel carry different values in two assignments?
A site differs from land in that a site is best described as which of the following?
In a built-up area where no vacant land has sold for years, which approach to site value is the usual fallback?
How is entrepreneurial profit treated in the subdivision development method?
A land comparable sold 18 months ago in a market rising about 4 percent a year. What adjustment direction applies?
In a land residual analysis for a proposed office development, the appraiser estimates total annual net operating income (NOI) will be $1,250,000. The improvement value, derived via the cost approach, is $15,000,000. Market evidence indicates a 7.0% overall capitalization rate is appropriate for similar improved properties. What is the indicated land value?
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?
In applying the land residual technique to a proposed subdivision, an appraiser estimates that the time required to fully absorb all lots will be 6 years. The developer requires a 10% annual yield on invested capital. Which discounting approach is most appropriate for converting future net proceeds to present value?
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In the land residual technique, income attributable to the land is found by:
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An appraiser is using the subdivision development method to value raw land for a proposed 120-lot residential subdivision. Total projected gross lot sales are $18,000,000. Development costs (excluding land) total $4,200,000; marketing and administrative expenses are $900,000; and the developer’s required profit is 12% of total projected gross lot sales. What is the residual land value?