An improved property sold for a cash-equivalent $1,050,000. Its supported depreciated improvement contribution is $712,000. Using extraction, with no other property components or adjustments, what land indication results?
Correct Answer
B) $338,000
Subtract the supported improvement component from the whole-property sale: $1,050,000 − $712,000 = $338,000. This is extraction/value decomposition. The income land-residual technique instead allocates net income and capitalizes the residual with suitable rates.
Why This Is the Correct Answer
Option B is correct because extraction subtracts the value contribution of the improvements from total property value. The calculation is $1,050,000 − $712,000 = $338,000.
Why the Other Options Are Wrong
Option A: $1,050,000
Option A, $1,050,000, is the total sale price of the improved property. It does not remove the $712,000 improvement contribution; land is $1,050,000 − $712,000 = $338,000.
Option C: $712,000
Option C, $712,000, is the depreciated improvement contribution, not the land. Land is what remains after subtracting it: $1,050,000 − $712,000 = $338,000.
Option D: $1,762,000
Option D, $1,762,000, adds the improvement contribution to the sale price: $1,050,000 + $712,000 = $1,762,000. Extraction subtracts it, giving $338,000.
Whole minus building equals land
Extraction is subtraction: sale price minus what the building contributes leaves the land.
How to use: Use this whenever a question gives a sale price and a depreciated improvement figure.
Exam Tip
The land figure should be smaller than the sale price; an answer larger than the sale price signals an addition error.
Common Mistakes to Avoid
- -Reporting the improvement contribution as land value
- -Adding rather than subtracting the improvement contribution
- -Confusing extraction with the income land residual technique
Concept Deep Dive
Analysis
This question tests extraction with a single supported improvement figure. Subtract the depreciated improvement contribution from the whole-property sale price. The remainder is the land indication.
Background Knowledge
Extraction decomposes a whole-property sale into improvement and land components. It differs from the land residual technique in the income approach, which allocates net income between building and land and capitalizes the land's share.
Real-World Application
An appraiser studies the sale of an older house whose depreciated improvement contribution is supported by a cost analysis. She subtracts that contribution from the sale price to extract a land indication for comparison with vacant lot sales.
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