An improved sale closed at $350,000. The improvements have a cost new of $280,000 and supported depreciation of 25%. What land value does extraction indicate?
Correct Answer
D) $140,000
Extraction subtracts the depreciated value of the improvements from the sale price: $280,000 × (1 − 0.25) = $210,000; $350,000 − $210,000 = $140,000. Subtracting undepreciated cost new gives $70,000.
Why This Is the Correct Answer
Option D is correct because the depreciated improvement value is $280,000 × (1 − 0.25) = $210,000, and $350,000 − $210,000 = $140,000. Extraction deducts the contributory value of the improvements from the sale price. The remainder is the land indication.
Why the Other Options Are Wrong
Option A: $70,000
Option A, $70,000, subtracts the undepreciated cost new from the price: $350,000 − $280,000 = $70,000. The improvements must be depreciated first, giving $350,000 − $210,000 = $140,000.
Option B: $210,000
Option B, $210,000, is the depreciated value of the improvements ($280,000 × 0.75), not the land. The land is $350,000 − $210,000 = $140,000.
Option C: $280,000
Option C, $280,000, is the improvements' cost new, not a land value. The correct land indication is $350,000 − ($280,000 × 0.75) = $140,000.
Depreciate first, then subtract
Cost new times what remains after depreciation gives the improvement contribution; only then subtract it from the price.
How to use: Use this two-step order whenever an extraction problem gives cost new and a depreciation percentage.
Exam Tip
If an extraction problem gives cost new and depreciation, you need both steps; a choice that skips the depreciation is a likely distractor.
Common Mistakes to Avoid
- -Subtracting cost new instead of depreciated cost
- -Reporting the depreciated improvement value as the land value
- -Multiplying by the depreciation rate instead of by one minus that rate
Concept Deep Dive
Analysis
This question tests extraction when the improvement contribution must first be calculated. Depreciate the cost new by the supported percentage to find the improvements' contributory value, then subtract that from the sale price. Skipping the depreciation step or stopping early yields the distractors.
Background Knowledge
In extraction, land value is derived by deducting the contributory value of the improvements from the sale price or total property value. The contributory value is typically estimated as cost new less depreciation. Using cost new without depreciation overstates the improvements and understates the land.
Real-World Application
An appraiser has an improved sale in a rural area with few vacant land sales. Using cost data and a market-supported depreciation estimate for the older home, the appraiser computes the improvement contribution and subtracts it from the price to indicate land value.
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
Previous Question
A competitive improved property sold for $1,050,000, and the applicable land-to-total value ratio is 24%. Separately, a whole-property value indication is $1,100,000, with a depreciated improvement contribution of $820,000. What are the land indications by allocation and by extraction, respectively?
Next Question
A cash-equivalent vacant-site sale of $400,000 has 50 front feet. Market analysis supports applying its rate per front foot to an otherwise matched subject with 60 front feet. What land indication results?