An improved property sold for a cash-equivalent price of $800,000. Comparable-neighborhood analysis supports a typical land-to-total-property-value ratio of 25%. Separately, replacement cost new less depreciation of the improvements is estimated at $560,000. Using the allocation method and extraction method on the same sale, which pair correctly states the indicated site (land) values?
Correct Answer
D) Allocation $200,000; extraction $240,000.
Allocation gives $800,000 × 25% = $200,000. Extraction gives $800,000 − $560,000 = $240,000. 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 D is correct because allocation gives $800,000 × 25% = $200,000 and extraction gives $800,000 − $560,000 = $240,000. In allocation a portion of total property value is assigned to the site, and in extraction site value is the total value less the contribution of the improvements.
Why the Other Options Are Wrong
Option A: Allocation $240,000; extraction $200,000.
Option A, allocation $240,000 and extraction $200,000, swaps the two results. Allocation is $800,000 × 25% = $200,000, and extraction is $800,000 − $560,000 = $240,000.
Option B: Allocation $600,000; extraction $560,000.
Option B, allocation $600,000 and extraction $560,000, reports the improvement side instead of the land. $600,000 is the 75% building share ($800,000 × 75%), and $560,000 is the improvement value itself; the land figures are $200,000 and $240,000.
Option C: Allocation $200,000; extraction $1,360,000.
Option C, allocation $200,000 and extraction $1,360,000, has the correct allocation but adds the improvement value instead of subtracting it ($800,000 + $560,000). Extraction is $800,000 − $560,000 = $240,000.
Allocation multiplies, extraction subtracts
Allocation multiplies the price by the land ratio. Extraction subtracts the improvements from the price.
How to use: Use this to set up the arithmetic when both methods appear in one question.
Exam Tip
Check that each figure is labeled to the correct method; answer choices often swap the pair or report the improvement value instead of land.
Common Mistakes to Avoid
- -Swapping the allocation and extraction results
- -Applying the building share instead of the land ratio
- -Adding improvement value instead of subtracting it
Concept Deep Dive
Analysis
This question tests two indirect land valuation methods applied to the same sale. Allocation applies a typical land-to-total ratio to the total price, while extraction subtracts the depreciated improvement value from the total price. The two methods rely on different evidence and need not give the same answer.
Background Knowledge
Allocation and extraction are used when vacant land sales are scarce. Allocation relies on a typical ratio of land to total value from comparable areas, while extraction relies on a reliable estimate of depreciated improvement value. Different results are reconciled based on the reliability of each method's evidence.
Real-World Application
An appraiser in a built-up neighborhood with no recent vacant lot sales needs a site value. The appraiser applies the area's typical land-to-value ratio to a recent sale and also extracts land value by subtracting the depreciated cost of the house, then reconciles the two indications.
More Land/Site Questions
How should an appraiser account for a site's access to public sewer compared with competing sites that require septic systems?
Which fact, if supported by competitive-market evidence, most directly supports a unit-price premium for an otherwise comparable site?
A rectangular site's frontage is doubled while its depth is halved, keeping area constant. What is the likely value effect in a retail district?
A downtown site's zoning height limit is reduced from six stories to three. Buyers in this market had been paying for six-story development potential. What effect on land value is most supportable?
A zoning change increases permitted density from four to eight units per acre. What is the likely effect on site value?
Using the allocation method, market evidence supports a typical land-to-total-property-value ratio of 28% for similar improved properties in the subject’s location. An improved comparable sold for $825,000. What land (site) contribution is indicated by applying that ratio?
An appraiser is valuing a vacant site near a landfill. A similar vacant site that is not affected by the landfill sold for $480,000. Paired land sales indicate that proximity to the landfill lowers site prices by $70,000. No other adjustments apply. What is the indicated value of the subject site?
An appraiser is extracting site value from a $600,000 cash sale. The seller's records show an original construction cost of $250,000 and a depreciated book value of $110,000. The appraiser estimates current replacement cost new at $400,000 and accrued depreciation from all causes at $100,000. What is the indicated site value?
Three parcels assembled under single ownership (standard appraisal guidance assemblage) support separate as-is values of $290,000, $340,000, and $250,000. After assemblage for a higher-utility use, the combined site is valued at $1,050,000. Assemblage costs (demolition, legal, holding, and related) total $55,000. What is the indicated net plottage (plottage increment after assemblage costs)?
A comparable commercial site with 65 front feet sold for a cash-equivalent price of $585,000. Per standard appraisal guidance, sale price per front foot is a vacant-land unit of comparison when frontage is a primary value determinant. The subject site has 72 front feet and is otherwise similar. What indicated land value does the front-foot unit support before other adjustments?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam