Extraction produces a negative land value on one sale in the sample. What does this signal?
Correct Answer
B) The improvement contribution was overstated
Why this is correct: The extraction method estimates land value by subtracting the depreciated value of improvements from a property's sale price: Land Value = Sale Price - Depreciated Improvement Value. A negative result means the estimated improvement value exceeded the sale price. This signals an error, most commonly an overstatement of the improvement's contributory value (e.g., using cost new with insufficient depreciation). Why the other choices are wrong: Land cannot have a negative market value; it always has some positive or zero value. A misrecorded sale price is possible but not the most likely signal from the method itself. Extraction can be applied to many property types; a negative value is a check on the inputs. Exam tip: A negative extracted land value is a red flag that your improvement value estimate is too high. Re-check your cost and depreciation figures.
Why This Is the Correct Answer
Why this is correct: The extraction method estimates land value by subtracting the depreciated value of improvements from a property's sale price: Land Value = Sale Price - Depreciated Improvement Value. A negative result means the estimated improvement value exceeded the sale price. This signals an error, most commonly an overstatement of the improvement's contributory value (e.g., using cost new with insufficient depreciation). Why the other choices are wrong: Land cannot have a negative market value; it always has some positive or zero value. A misrecorded sale price is possible but not the most likely signal from the method itself. Extraction can be applied to many property types; a negative value is a check on the inputs. Exam tip: A negative extracted land value is a red flag that your improvement value estimate is too high. Re-check your cost and depreciation figures.
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?
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