An extraction analysis has a large supported land remainder and a modest improvement contribution whose absolute estimation uncertainty is credibly limited. Why can extraction be useful in this situation?
Correct Answer
A) A small error in the small component barely moves the larger land residual
Extraction transfers a dollar error in the improvement contribution directly into the land remainder. If reliable evidence supports a small improvement contribution with limited absolute uncertainty, the extracted land indication can be less sensitive in percentage terms. Old age or rural location alone does not establish reliability.
Why This Is the Correct Answer
Option A is correct because extraction subtracts the improvement contribution from total value, so a dollar error in that contribution becomes the same dollar error in the land. When the improvement contribution is modest and its uncertainty is limited, the error is small relative to the large land residual. This is why the method is most reliable for properties with limited improvements.
Why the Other Options Are Wrong
Option B: Rural sites are valued by the extraction method, by rule
Option B says rural sites are valued by extraction by rule. No rule requires extraction for rural sites; its usefulness depends on the reliability of the improvement estimate.
Option C: Older buildings have the most accurate and reliable cost data
Option C says older buildings have the most accurate and reliable cost data. Older buildings often have more depreciation that is harder to measure, so age alone does not make the improvement estimate reliable.
Option D: Extraction does not require any estimate of the improvements’ accrued depreciation
Option D says extraction requires no estimate of accrued depreciation. The improvement contribution is typically based on depreciated cost, so depreciation must be estimated.
Small building, small error
The smaller the improvement value you subtract, the smaller the possible error passed to the land. Extraction works best on lightly improved properties.
How to use: Use this to judge when extraction gives a dependable land indication.
Exam Tip
Choose explanations based on how errors carry through the calculation rather than answers based on location or building age.
Common Mistakes to Avoid
- -Thinking extraction does not need depreciation estimates
- -Assuming building age makes cost data more reliable
- -Believing extraction is required for rural property
Concept Deep Dive
Analysis
This question tests why extraction is most reliable when improvements contribute little value. In extraction, any dollar error in the improvement estimate passes directly into the land remainder. When the improvement contribution is small and its absolute uncertainty is limited, that error is small relative to a large land value.
Background Knowledge
Extraction estimates site value by subtracting the depreciated contribution of the improvements from a property's sale price. It is used when vacant land sales are scarce and is most reliable when improvements contribute a small share of total value.
Real-World Application
An appraiser values land in an area with few vacant sales but several sales of large parcels with small, simple outbuildings. Because the outbuildings contribute little and can be estimated with reasonable confidence, the appraiser uses extraction to derive land value from those sales.
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Previous Question
Vacant land may be valued by a multi-comparable mean unit price ($/front foot) applied to the subject’s street frontage. Four similar vacant comps support unit prices of $2,500, $2,700, $2,900, and $3,100 per front foot. Subject has 160 front feet. What indicated land value by mean $/FF results?
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A comparable vacant site sold for $295,000, cash equivalent. The net adjustment to this sale is +$30,000 because the subject is superior overall. What is the indicated value of the subject site?