An improved property sold for a cash-equivalent price of $640,000. Analysis of comparable neighborhoods supports a typical land-to-total-property-value ratio of 30%. Using the allocation method, what land (site) value contribution is indicated?
Correct Answer
A) $192,000
Land allocation is $640,000 × 30% = $192,000. The complementary proportion represents the non-land component. Apply only a ratio supported for the relevant market, property type and interests; the supplied proportion is an exercise input, not a general rule.
Why This Is the Correct Answer
Option A is correct because the allocation method assigns a supported portion of total property value to the site. Multiplying $640,000 by the 30% land ratio gives $640,000 × 0.30 = $192,000. That figure is the land contribution; the remaining 70% represents the non-land component.
Why the Other Options Are Wrong
Option B: $640,000
Option B, $640,000, is the total cash-equivalent price of the improved property, not the land portion. It skips the allocation step entirely; the correct land share is $640,000 × 0.30 = $192,000.
Option C: $448,000
Option C, $448,000, is the complementary non-land share: $640,000 × 0.70 = $448,000 (or $640,000 − $192,000). The question asks for the land contribution, which is $640,000 × 0.30 = $192,000.
Option D: $19,200
Option D, $19,200, results from a decimal error, applying 3% instead of 30%: $640,000 × 0.03 = $19,200. The correct calculation is $640,000 × 0.30 = $192,000.
Ratio times total equals land
Allocation slices the whole pie: land share = total value × land ratio. The rest of the pie is the improvements.
How to use: Use this whenever a question gives a total price and a land-to-total percentage.
Exam Tip
Check that your answer is the land slice, not the total or the building slice. Exam distractors often show the complementary percentage and a misplaced decimal.
Common Mistakes to Avoid
- -Reporting the building share (the complementary percentage) as land value
- -Moving the decimal and applying 3% instead of 30%
- -Using a ratio from a different market or property type without support
Concept Deep Dive
Analysis
This question tests the allocation method of land valuation. You apply the market-supported land-to-total ratio to the total property price to isolate the land portion. The key is to multiply the total by the ratio and report only the land share, not the total or the building share.
Background Knowledge
Allocation estimates land value as a typical ratio of land value to total property value, derived from comparable areas or property types, applied to the subject's total value. It is most useful when vacant land sales are scarce. The ratio must be supported for the relevant market, property type and interest; a supplied ratio in an exercise is not a general rule.
Real-World Application
An appraiser valuing a home in a fully built-out subdivision finds no recent vacant lot sales. Using older lot sales and builder data from similar neighborhoods, she supports a land-to-total ratio and applies it to the subject's indicated value, noting the method's limited reliability in the report.
More Land/Site Questions
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Which fact, if supported by competitive-market evidence, most directly supports a unit-price premium for an otherwise comparable site?
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The subject is a vacant site with an irregular shape. A comparable vacant site with a regular shape sold for $395,000. Paired land sales indicate a discount of $57,000 for an irregular shape. No other adjustments apply. What is the indicated land value of the subject?