How is the value of excess land normally estimated?
Correct Answer
C) On its own highest and best use as a parcel
Why this is correct: Excess land is a portion of a site that is not needed to support the existing improvement but has its own development potential. It should be valued separately based on its own highest and best use as if it were a standalone parcel, using comparable land sales that are similar in size, shape, and utility to the excess portion. Why the other choices are wrong: 'As a proportion of the primary site's value' is wrong; excess land may have a different unit value. 'At the same unit rate as the primary site' is wrong; smaller parcels often have higher unit values. 'By deducting it from the total property value' is wrong; that describes surplus land, which is valued contributory to the primary use. Exam tip: Excess land = separate HBU, valued independently. Surplus land = supports primary use, valued contributory.
Why This Is the Correct Answer
Why this is correct: Excess land is a portion of a site that is not needed to support the existing improvement but has its own development potential. It should be valued separately based on its own highest and best use as if it were a standalone parcel, using comparable land sales that are similar in size, shape, and utility to the excess portion. Why the other choices are wrong: 'As a proportion of the primary site's value' is wrong; excess land may have a different unit value. 'At the same unit rate as the primary site' is wrong; smaller parcels often have higher unit values. 'By deducting it from the total property value' is wrong; that describes surplus land, which is valued contributory to the primary use. Exam tip: Excess land = separate HBU, valued independently. Surplus land = supports primary use, valued contributory.
More land-or-site-valuation Questions
Under which condition is the land residual technique most applicable?
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Why can the same physical parcel carry different values in two assignments?
A site differs from land in that a site is best described as which of the following?
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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?
In a land residual analysis for a proposed office development, the appraiser estimates total annual net operating income (NOI) will be $1,250,000. The improvement value, derived via the cost approach, is $15,000,000. Market evidence indicates a 7.0% overall capitalization rate is appropriate for similar improved properties. What is the indicated land value?
A developer plans a 36-lot residential subdivision on raw land. Each lot is expected to sell for $85,000. Total development costs (excluding land) are $1,420,000, including $220,000 for entrepreneurial incentive. The developer requires a 12% annual yield on invested capital over a 3-year development period. Using the subdivision development method, what is the maximum price the developer should pay for the land if all lots sell at the projected price and timing?
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Previous Question
Net operating income is $240,000 and the building, worth $1,500,000, is capitalized at 9 percent. Using a 7 percent land rate, what does the land residual technique indicate?
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Vacant lots in a subdivision sell for about $80,000 while finished homes there sell for about $400,000. Applying that relationship to a subject home that sold for $525,000, what site value does allocation indicate?