An appraiser applies a site-to-total ratio derived from sales ten years ago. What caution applies?
Correct Answer
C) The ratio of site value to total value can change over time
When a site value percentage is estimated from past trends, the ratio of site value to total property value can change over time.
Why This Is the Correct Answer
Option C is correct because the ratio of site value to total property value can change over time. When a site percentage is estimated from past trends, land and improvement values may have moved at different rates since then. A ratio from ten years ago may therefore misstate the current share of value attributable to the site.
Why the Other Options Are Wrong
Option A: The ratio must be squared to reflect compounding
Option A, squaring the ratio to reflect compounding, is wrong because there is no such procedure in allocation. A ratio is not compounded by squaring, and the real concern is whether the relationship itself has changed.
Option B: The ratio is valid if the subdivision is unchanged
Option B, that the ratio is valid if the subdivision is unchanged, is wrong because the physical subdivision can stay the same while land and building values shift at different rates. An unchanged neighborhood layout does not keep the ratio current.
Option D: Older ratios are preferred, since they are more stable
Option D, that older ratios are preferred because they are more stable, is wrong because older data reflects past market conditions. Current market evidence is preferred, and older ratios carry the risk that the relationship has changed.
Old ratios can go stale
A site-to-total ratio is a snapshot of one market moment; as land and building values drift apart, the snapshot goes out of date.
How to use: Use this when a question mentions applying a ratio or percentage from past years.
Exam Tip
Prefer answers that point to changing market relationships when old data is involved, rather than answers claiming older data is more reliable.
Common Mistakes to Avoid
- -Treating a historical land ratio as fixed
- -Assuming an unchanged neighborhood means an unchanged land-to-value ratio
Concept Deep Dive
Analysis
This question tests a key limitation of the allocation method. A site-to-total ratio drawn from sales ten years ago may no longer reflect current market relationships. The appraiser should recognize that the ratio can change over time and verify it against current evidence.
Background Knowledge
Allocation relies on a typical relationship between site value and total value in a market. That relationship is influenced by land scarcity, construction costs and demand, all of which shift over time. Ratios should be drawn from current, comparable market data where possible.
Real-World Application
An appraiser finds a ten-year-old study showing lots made up 20% of home values in a neighborhood. Since then lot prices have risen faster than building costs, so the appraiser checks recent sales before relying on the old figure.
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?
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Previous Question
Three improved sales show site values of $90,000, $110,000 and $96,000 against prices of $360,000, $400,000 and $400,000. Using the median site-to-total ratio, what site value does allocation indicate for a subject valued at $450,000?
Next Question
An appraiser is valuing an 8.2-acre vacant parcel. Three similar vacant parcels sold at $88,000, $95,000, and $102,000 per acre. The appraiser concludes to the simple mean of those unit prices, and no other adjustments are needed. What is the indicated land value?