An appraiser applies extraction to a rural property whose improvements are old and of modest value. Why does the method suit this case particularly well?
Correct Answer
A) Improvement value is small, so any error in it is small
Why this is correct: The extraction method suits this case because the improvement value is small relative to the total property value. In extraction, land value is found by subtracting the estimated improvement value from the total sale price. Any error in the improvement estimate is transferred directly into the land value estimate. When improvements are old and of modest value, even a significant percentage error in their estimate results in only a small absolute dollar error, which has a minimal impact on the derived land value. Why the other choices are wrong: "Rural sites must be valued by the extraction method" is false; multiple methods can be used. "Cost data is more accurate for older rural buildings" is generally not true; cost data for older buildings can be less reliable. "The method requires no estimate of depreciation at all" is incorrect; extraction requires an estimate of improvement value, which includes depreciation. Exam tip: Extraction is most reliable when improvements contribute a small fraction of total value, minimizing the impact of estimation errors.
Why This Is the Correct Answer
Why this is correct: The extraction method suits this case because the improvement value is small relative to the total property value. In extraction, land value is found by subtracting the estimated improvement value from the total sale price. Any error in the improvement estimate is transferred directly into the land value estimate. When improvements are old and of modest value, even a significant percentage error in their estimate results in only a small absolute dollar error, which has a minimal impact on the derived land value. Why the other choices are wrong: "Rural sites must be valued by the extraction method" is false; multiple methods can be used. "Cost data is more accurate for older rural buildings" is generally not true; cost data for older buildings can be less reliable. "The method requires no estimate of depreciation at all" is incorrect; extraction requires an estimate of improvement value, which includes depreciation. Exam tip: Extraction is most reliable when improvements contribute a small fraction of total value, minimizing the impact of estimation errors.
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