Comparable land sales are expressed per acre while the subject is small and urban. What is the concern?
Correct Answer
A) Per-acre rates conceal the size relationship
Why this is correct: Value per unit (e.g., per acre) typically decreases as parcel size increases (the principle of decreasing marginal utility). Applying a per-acre rate from large, possibly rural parcels to a small urban lot would likely understate the subject's unit value. Why the other choices are wrong: 'Acres may not be converted into square feet' is false; units can be converted mathematically. 'Urban parcels are always valued per front foot' is an overgeneralization; the unit of comparison depends on market norms. 'Small parcels cannot be compared with any others' is incorrect; adjustments can be made for size differences. Exam tip: Use a unit of comparison (e.g., per square foot, per front foot) that is typical for the subject's market segment and size.
Why This Is the Correct Answer
Why this is correct: Value per unit (e.g., per acre) typically decreases as parcel size increases (the principle of decreasing marginal utility). Applying a per-acre rate from large, possibly rural parcels to a small urban lot would likely understate the subject's unit value. Why the other choices are wrong: 'Acres may not be converted into square feet' is false; units can be converted mathematically. 'Urban parcels are always valued per front foot' is an overgeneralization; the unit of comparison depends on market norms. 'Small parcels cannot be compared with any others' is incorrect; adjustments can be made for size differences. Exam tip: Use a unit of comparison (e.g., per square foot, per front foot) that is typical for the subject's market segment and size.
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Previous Question
A tract will yield 40 lots selling at $80,000 each. Development costs are $1,200,000, sales and marketing run 8 percent of gross, and the developer requires a 20 percent profit on gross. Ignoring discounting, what land value is indicated?
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What is the appraiser's obligation when a site's legal description does not match its apparent physical boundaries?