Comparable vacant sites support a market unit rate of $87,500 per acre for similar utility land. The subject site contains 9.6 acres and is otherwise comparable (no other adjustments). Applying that unit rate in a land sales comparison, what indicated land value results?
Correct Answer
C) $840,000
Value = 9.6 acres × $87,500/acre = $840,000. The indicated result is $840,000. Common errors: misplacing the decimal in the acreage gives $84,000; misplacing the decimal in the rate gives $8,400,000; reporting the unit rate instead of the total gives $87,500.
Why This Is the Correct Answer
Option C is correct because 9.6 acres × $87,500 per acre = $840,000. With no other adjustments, applying the supported unit rate to the subject's acreage gives this indicated value.
Why the Other Options Are Wrong
Option A: $84,000
Option A, $84,000, misplaces the decimal in the acreage, effectively using 0.96 acres: 0.96 × $87,500 = $84,000. The correct calculation is 9.6 × $87,500 = $840,000.
Option B: $87,500
Option B, $87,500, is the unit rate for one acre, not the total value of the 9.6-acre site. The total is 9.6 × $87,500 = $840,000.
Option D: $8,400,000
Option D, $8,400,000, misplaces the decimal in the rate, effectively using $875,000 per acre: 9.6 × $875,000 = $8,400,000. The correct calculation is 9.6 × $87,500 = $840,000.
Rate times units
A unit rate is the price of one unit; multiply by the subject's number of units to get its value.
How to use: Use this when converting a per-acre or per-square-foot rate into a total value.
Exam Tip
Estimate the answer roughly first, about 10 acres at about $90,000, to spot decimal errors in the choices.
Common Mistakes to Avoid
- -Reporting the unit rate as the total value
- -Shifting the decimal in the acreage or the rate
- -Applying a rate from comparables with different utility
Concept Deep Dive
Analysis
This question tests applying a market-derived unit rate to the subject's size. Multiply 9.6 acres by $87,500 per acre to get the indicated land value. Careful handling of the decimal is the main challenge.
Background Knowledge
Land sales are often analyzed using a unit of comparison such as price per acre or per square foot. Once a supported unit rate is established, it is applied to the subject's units to indicate value. The rate should come from comparables with similar utility.
Real-World Application
An appraiser finds that comparable vacant parcels with similar utility sell for about $87,500 per acre. The subject is 9.6 acres with no other differences, so she indicates a land value of $840,000.
More Land/Site Questions
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Which fact, if supported by competitive-market evidence, most directly supports a unit-price premium for an otherwise comparable site?
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