An appraiser needs a land-to-value ratio for a market where no vacant land has sold. What is the best source?
Correct Answer
A) Extraction from improved sales in that market
Why this is correct: The extraction method derives a land value indication by subtracting the depreciated value of improvements from the sale price of comparable improved properties. This provides a market-based ratio specific to the subject's market area. Why the other choices are wrong: 'A ratio published for the state as a whole' is too broad and may not reflect local conditions. 'The assessor's land and building split on record' is for tax purposes and may not reflect market value. 'The ratio the client used on a previous file' is not an independently verifiable market source. Exam tip: When direct land sales are unavailable, extraction from improved sales is the preferred method for deriving a land-to-value ratio.
Why This Is the Correct Answer
Why this is correct: The extraction method derives a land value indication by subtracting the depreciated value of improvements from the sale price of comparable improved properties. This provides a market-based ratio specific to the subject's market area. Why the other choices are wrong: 'A ratio published for the state as a whole' is too broad and may not reflect local conditions. 'The assessor's land and building split on record' is for tax purposes and may not reflect market value. 'The ratio the client used on a previous file' is not an independently verifiable market source. Exam tip: When direct land sales are unavailable, extraction from improved sales is the preferred method for deriving a land-to-value ratio.
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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