An appraiser's value indication for a whole property is $2,450,000, and the depreciated contribution of all nonland improvements, including site improvements, is $1,180,000. What land value does the extraction method indicate?
Correct Answer
B) $1,270,000
Land component = $2,450,000 − $1,180,000 = $1,270,000. The indicated result is $1,270,000. Common errors: adding the improvement contribution instead of subtracting it gives $3,630,000; reporting the improvement contribution instead of the land gives $1,180,000; not removing the improvement contribution gives $2,450,000.
Why This Is the Correct Answer
Option B is correct because the land component equals whole-property value minus improvement contribution: $2,450,000 − $1,180,000 = $1,270,000. Including site improvements in the deduction leaves only land.
Why the Other Options Are Wrong
Option A: $1,180,000
Option A, $1,180,000, is the improvement contribution, not the land. Land is $2,450,000 − $1,180,000 = $1,270,000.
Option C: $2,450,000
Option C, $2,450,000, is the whole-property value without removing the improvements. Land is $2,450,000 − $1,180,000 = $1,270,000.
Option D: $3,630,000
Option D, $3,630,000, adds the improvement contribution: $2,450,000 + $1,180,000 = $3,630,000. The contribution must be subtracted, giving $1,270,000.
Total minus improvements equals land
Remove everything that is not land, including site improvements, and what remains is land.
How to use: Use this to set up decomposition and extraction problems.
Exam Tip
Make sure every nonland improvement, including site improvements, has been deducted before reporting land.
Common Mistakes to Avoid
- -Adding the improvement contribution instead of subtracting
- -Reporting the improvement contribution as land
- -Leaving site improvements in the land figure
Concept Deep Dive
Analysis
This question tests value decomposition. The land component is found by subtracting the depreciated contribution of all nonland improvements from the whole-property value. Here $2,450,000 minus $1,180,000 gives the land indication.
Background Knowledge
Value decomposition separates total property value into land and improvement components. Subtracting the depreciated contribution of all improvements, including site improvements, leaves the land component. This differs from the income land residual technique, which works with income streams and capitalization rates.
Real-World Application
An appraiser has a reconciled value for a house and a supported depreciated cost for the dwelling, driveway and fencing. She subtracts those contributions to report the implied land component for the client's allocation needs.
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