An improved comparable sold for a cash-equivalent $1,250,000. Market allocation evidence supports a typical land-to-total-price ratio of 20% for competitive properties (standard appraisal guidance allocation). Separately, depreciated replacement cost of the improvements (RCNLD) is supported at $960,000, so extraction isolates land as sale price minus RCNLD. What land indications result under allocation versus extraction, and which statement is correct?
Correct Answer
B) Allocation $250,000; extraction $290,000.
Allocation gives $1,250,000 × 20% = $250,000. Extraction gives $1,250,000 − $960,000 = $290,000. The two methods use different evidence and need not coincide; reconcile reliability instead of forcing equality. The complete pair, rather than a truncated single method result, is the answer.
Why This Is the Correct Answer
Option B is correct because allocation gives $1,250,000 × 0.20 = $250,000 and extraction gives $1,250,000 − $960,000 = $290,000. The two indications need not match; the appraiser reconciles them based on reliability.
Why the Other Options Are Wrong
Option A: Allocation $290,000; extraction $250,000.
Option A, allocation $290,000 and extraction $250,000, swaps the two results. Allocation is $1,250,000 × 0.20 = $250,000 and extraction is $1,250,000 − $960,000 = $290,000.
Option C: Allocation $1,000,000; extraction $960,000.
Option C, allocation $1,000,000 and extraction $960,000, applies the 80% improvement share ($1,250,000 × 0.80 = $1,000,000) and reports the RCNLD itself as the extraction result. Land is $250,000 by allocation and $1,250,000 − $960,000 = $290,000 by extraction.
Option D: Allocation $250,000; extraction $2,210,000.
Option D, allocation $250,000 and extraction $2,210,000, has the correct allocation but adds the RCNLD: $1,250,000 + $960,000 = $2,210,000. Extraction subtracts it, giving $290,000.
Allocation multiplies, extraction subtracts
Allocation takes a percentage of price; extraction takes price minus the improvements.
How to use: Use this to keep the two methods straight in a combined question.
Exam Tip
Compute each method separately and check which figure belongs to which method before choosing a pair.
Common Mistakes to Avoid
- -Swapping the allocation and extraction results
- -Using the improvement share instead of the land share
- -Adding RCNLD to the price in extraction
Concept Deep Dive
Analysis
This question tests computing and distinguishing allocation and extraction. Allocation applies the 20% land ratio to the price, while extraction subtracts the depreciated improvement cost from the price. The two methods use different evidence and can produce different results.
Background Knowledge
Allocation uses a market-derived land-to-total ratio, while extraction subtracts the contribution of improvements from a sale price. Because they rely on different data, their results often differ. Appraisers reconcile multiple land indications by weighing the quality of each.
Real-World Application
An appraiser runs both allocation and extraction on a recent improved sale in a mature neighborhood. The results differ by $40,000, so she reviews the support for the ratio and the depreciation estimate and gives more weight to the better-supported method.
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