An appraiser is valuing undeveloped land intended for a 40-lot subdivision. Market data indicates strong demand, but the only nearby comparable subdivision sold out in 3 years with steady monthly absorption. The subject site is larger, topographically constrained, and lacks existing infrastructure. Which factor most critically affects the reliability of using the comparable’s absorption rate in the subject’s land residual analysis?
Correct Answer
B) Lack of adjustment for physical and locational differences affecting marketability
USPAP Standards Rule 1-4 requires adjustments for relevant physical, legal, and economic differences when using comparables. Absorption rate is highly sensitive to site-specific factors such as topography, access, utility availability, and infrastructure — all of which impact marketability and buyer appeal. Failing to adjust for these undermines the credibility of the residual land value. Options A, C, and D describe either irrelevant or secondary considerations not directly tied to absorption reliability.
Why This Is the Correct Answer
USPAP Standards Rule 1-4 requires adjustments for relevant physical, legal, and economic differences when using comparables. Absorption rate is highly sensitive to site-specific factors such as topography, access, utility availability, and infrastructure — all of which impact marketability and buyer appeal. Failing to adjust for these undermines the credibility of the residual land value. Options A, C, and D describe either irrelevant or secondary considerations not directly tied to absorption reliability.
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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