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
Per-acre rates conceal the size relationship is the concern because the unit of comparison is doing the very thing a unit of comparison should not do, which is disguise a difference that drives value. A small urban lot typically sells for many times the per-unit rate of an acreage parcel in the same market, so importing the acreage rate without recognizing the size effect produces a value indication far below what the market supports. Selecting a unit the market uses for lots of the subject's size, commonly price per square foot, per front foot, per buildable square foot, or per allowable unit, keeps the comparison honest. The appraiser should also confirm that the comparables sit in the same competitive segment rather than merely in the same county.
Why the Other Options Are Wrong
Option B: Acres may not be converted into square feet
Acres convert to square feet exactly, at forty-three thousand five hundred sixty square feet per acre, so there is no mathematical obstacle at all. The option is tempting because a conversion is genuinely part of the fix, but the difficulty is analytical rather than arithmetic and survives any change of units performed without adjusting for size.
Option C: Urban parcels are always valued per front foot
Front foot pricing is common where street frontage governs utility, such as older commercial strips and some waterfront markets, but it is not a universal rule for urban land. The correct unit is whichever one market participants in that segment actually use, and asserting a single mandatory unit substitutes a rule for the market observation the appraiser is required to make.
Option D: Small parcels cannot be compared with any others
Small parcels are compared routinely, and the size difference is handled through adjustment or through better comparable selection rather than by abandoning the approach. Declaring comparison impossible would leave the appraiser without a sales comparison indication in exactly the situations where land sales are most plentiful.
Big Parcel, Small Price Per Piece
The bigger the parcel, the cheaper each piece of it. A rate borrowed from acreage always arrives too low for a city lot, no matter how you convert the units.
How to use: When comparables and the subject differ sharply in size, expect a size adjustment and expect the unit itself to be suspect. Choose the unit the subject's own market segment uses before you begin the grid.
Exam Tip
Land valuation questions frequently test whether you notice that the unit of comparison is masking a difference, so check unit and scale before you check the arithmetic.
Common Mistakes to Avoid
- -Applying an acreage rate directly to a small lot without a size adjustment
- -Choosing a unit of comparison because the data came that way rather than because the market uses it
- -Comparing parcels of similar size but different highest and best use
- -Assuming that converting units resolves a size difference
Concept Deep Dive
Analysis
This tests the choice of a unit of comparison in land valuation and the size relationship that lurks behind it. Land value per unit of area is not constant across parcel sizes; it almost always declines as parcels get larger, because a buyer of a large tract is buying holding costs, absorption risk, and often a less intensive use per unit of ground. That inverse relationship means a rate extracted from acre-scale sales carries the discount that size brings with it, and applying that discounted rate to a small urban lot understates the subject. The unit itself also hides the problem, because expressing everything per acre makes a two-acre sale and a five-thousand-square-foot subject look directly comparable when the market prices them very differently. The remedy is to choose a unit the market actually uses for the subject's size and segment, and to adjust for size within a set of genuinely comparable parcels.
Background Knowledge
You need to know that value per unit of area generally decreases as parcel size increases, and that a unit of comparison must be one the relevant market recognizes. You should also know the common land units, including price per square foot, per acre, per front foot, per buildable square foot, and per allowable dwelling unit, and be able to convert cleanly among area measures.
Real-World Application
You are valuing a six-thousand-square-foot infill lot and the only land sales your service returns are two- to ten-acre suburban tracts priced per acre. You reject the direct application of those rates, search instead for small infill lot sales in the same neighborhood, express the analysis in price per square foot, and where you must reach for a larger parcel you support an explicit size adjustment and explain it.
More Land/Site Questions
Under which condition is the land residual technique most applicable?
Why can the same physical parcel carry different values in two assignments?
In a built-up area where no vacant land has sold for years, which approach to site value is the usual fallback?
How is entrepreneurial profit treated in the subdivision development method?
A land comparable sold 18 months ago in a market rising about 4 percent a year. What adjustment direction applies?
Why does a developer's required profit rise for a longer subdivision project?
How does holding cost enter the valuation of land bought for future development?
Excess land is best described as land that has which characteristic?
Plottage value arises in which of the following situations?
Which of the following is an off-site improvement rather than a site improvement?
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 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?
Next Question
What is the appraiser's obligation when a site's legal description does not match its apparent physical boundaries?