An improved comparable sold for a cash-equivalent $1,480,000. Market allocation evidence supports a typical land-to-total-property ratio of 21%. Separately, replacement cost new less depreciation (RCNLD) of the building improvements is supported at $1,145,000. Per standard appraisal guidance, what are the allocation and extraction (abstraction) land indications, and which statement is correct?
Correct Answer
A) Allocation $310,800; extraction $335,000.
Allocation gives $1,480,000 × 21% = $310,800. Extraction gives $1,480,000 − $1,145,000 = $335,000. The two methods use different evidence and need not coincide; reconcile reliability instead of forcing equality. The complete pair, rather than a truncated single method result, is the answer.
Why This Is the Correct Answer
Option A is correct because allocation gives $1,480,000 × 21% = $310,800, and extraction gives $1,480,000 − $1,145,000 = $335,000. The appraiser then reconciles the two indications based on the reliability of each.
Why the Other Options Are Wrong
Option B: Allocation $335,000; extraction $310,800.
Option B (allocation $335,000; extraction $310,800) swaps the two results. $310,800 comes from the 21% ratio, which is allocation, and $335,000 comes from subtracting RCNLD, which is extraction.
Option C: Allocation $1,169,200; extraction $1,145,000.
Option C (allocation $1,169,200; extraction $1,145,000) reports improvement figures rather than land. $1,169,200 is the 79% building share ($1,480,000 − $310,800), and $1,145,000 is the RCNLD itself; the land indications are $310,800 and $335,000.
Option D: Allocation $310,800; extraction $2,625,000.
Option D gets allocation right at $310,800 but its extraction of $2,625,000 adds the improvements to the price ($1,480,000 + $1,145,000). Extraction subtracts them: $1,480,000 − $1,145,000 = $335,000.
Ratio times, cost minus
Allocation is the sale times the ratio; extraction is the sale minus the depreciated improvements.
How to use: Use this to quickly assign each figure in a two-method answer to the correct method.
Exam Tip
When an answer pairs two results, verify both numbers and their labels; a correct number under the wrong label is still wrong.
Common Mistakes to Avoid
- -Swapping the allocation and extraction results
- -Reporting the improvement value as the land value
- -Adding RCNLD to the sale price instead of subtracting it
Concept Deep Dive
Analysis
This question asks for two separate land indications from the same sale. Allocation multiplies the sale price by the supported land ratio, and extraction subtracts the depreciated improvement value from the sale price. The two results need not match because they rely on different evidence.
Background Knowledge
Allocation applies a typical land-to-total ratio derived from the market for similar properties. Extraction subtracts the contributory value of improvements, often estimated as replacement cost new less depreciation, from a total property value. Differences between the two are resolved through reconciliation, not by forcing them to agree.
Real-World Application
An appraiser in a mature neighborhood has a recent improved sale but no vacant lot sales. The appraiser computes a land indication by allocation and another by extraction, then explains in the report which is better supported and why.
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