Improved sales in a built-up area show site value at about 25% of total property value. The subject’s total value is estimated at $480,000. What site value does the allocation method indicate?
Correct Answer
B) $120,000
Allocation applies the typical site-to-total ratio to the subject’s total value: $480,000 × 25% = $120,000. $360,000 is the improvement share; $96,000 misreads 25% as a site-to-building ratio (480,000 × 25/125); $160,000 treats $480,000 as the building value and applies a 25:75 site-to-building ratio.
Why This Is the Correct Answer
Option B is correct because allocation applies the site-to-total ratio to the subject's total value: $480,000 x 25% = $120,000. The ratio is applied to the total value estimate for the subject to estimate site value. The area is built up, which is where allocation is typically used.
Why the Other Options Are Wrong
Option A: $360,000
Option A, $360,000, is the improvement share: $480,000 x 0.75. The site share is $480,000 x 0.25 = $120,000.
Option C: $96,000
Option C, $96,000, misreads 25% as a site-to-building ratio and computes $480,000 x 25/125. The stated ratio is site to total value, so site value is $480,000 x 0.25 = $120,000.
Option D: $160,000
Option D, $160,000, treats $480,000 as the building value and applies a 25:75 site-to-building ratio ($480,000 x 25/75). The $480,000 is total value, so site value is $480,000 x 0.25 = $120,000.
Ratio times total
Allocation means site = typical site ratio x total value; keep the ratio's denominator as total value.
How to use: Use this when a question gives a site-to-total percentage and a total value.
Exam Tip
Confirm whether a ratio is site-to-total or site-to-building before applying it.
Common Mistakes to Avoid
- -Reporting the improvement share as site value
- -Treating a site-to-total ratio as site-to-building
- -Relying on allocation alone when vacant land sales exist
Concept Deep Dive
Analysis
This question tests the allocation method. A typical site-to-total-value ratio from comparable improved sales is applied to the subject's total value. The distractors come from applying the ratio the wrong way or misreading which value it relates to.
Background Knowledge
Allocation estimates land value by applying a typical ratio of land value to total property value, observed in comparable properties, to the subject. It is used mainly where vacant land sales are scarce and is generally considered less reliable than direct sales comparison.
Real-World Application
In a fully built-out urban neighborhood with no recent lot sales, an appraiser studies improved sales and finds site value typically runs about a quarter of total value. The appraiser applies that ratio to the subject as one supporting land indication.
More Land/Site Questions
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