In a built-up neighborhood, relevant vacant sales are unavailable, but reliable competitive improved sales and credible improvement-contribution or land-ratio evidence exist. Which alternatives can estimate the land component from those improved sales?
Correct Answer
D) Extraction or allocation from improved sales
When relevant vacant sales are sparse, supported extraction or allocation from competitive improved sales may provide land indications. Their usefulness depends on reliable improvement contribution or ratio evidence. Other-market sales or income methods are not automatically prohibited; their applicability must be established.
Why This Is the Correct Answer
Option D is correct because extraction and allocation both derive a land indication from improved sales. Extraction subtracts a supported improvement contribution, and allocation applies a supported ratio of site value to total value. The stem states reliable improved sales and credible contribution or ratio evidence exist, which is what these methods need.
Why the Other Options Are Wrong
Option A: Direct comparison with vacant sites elsewhere
Option A, direct comparison with vacant sites elsewhere, does not use the improved sales the stem describes. Sales from other markets are not automatically prohibited, but their comparability would have to be established, and they are not a method of estimating land from improved sales.
Option B: The subdivision development method of analysis
Option B, the subdivision development method, values raw land from projected lot sales less development costs and profit. It does not derive land value from sales of improved properties in a built-up neighborhood.
Option C: Capitalizing the ground rent under the lease
Option C, capitalizing ground rent under a lease, is an income method that needs ground rent data. The stem mentions no ground lease, and this method does not use improved sales to estimate land.
Improved sales: extract or allocate
Extraction takes the building out of the price; allocation splits the price by a ratio. Both start with an improved sale.
How to use: Use this when a question says vacant sales are unavailable but improved sales exist.
Exam Tip
Match the method to the data in the stem: improved sales point to extraction or allocation, lot projections to subdivision development, and ground leases to ground rent capitalization.
Common Mistakes to Avoid
- -Choosing subdivision development for a single built-up site
- -Assuming vacant sales from any other market are directly comparable
- -Using extraction without reliable support for improvement contribution
Concept Deep Dive
Analysis
This question tests which land valuation methods rely on improved sales when vacant sales are lacking. Extraction subtracts the contribution of improvements from an improved sale price, and allocation applies a supported land-to-total ratio. Both use improved sales, which matches the stem's facts.
Background Knowledge
Common land valuation methods include sales comparison, extraction, allocation, subdivision development, land residual and ground rent capitalization. Extraction and allocation are used mainly when vacant land sales are scarce, as in built-up areas. Their reliability depends on how well the improvement contribution or land ratio is supported.
Real-World Application
An appraiser values a site in a fully developed older neighborhood with no recent vacant lot sales. Using recent home sales and well-supported depreciated improvement costs, the appraiser extracts land indications and checks them against a market-supported land-to-value ratio.
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Using the allocation method, market evidence supports a typical land-to-total-property-value ratio of 28% for similar improved properties in the subject’s location. An improved comparable sold for $825,000. What land (site) contribution is indicated by applying that ratio?
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An appraiser is extracting site value from a $600,000 cash sale. The seller's records show an original construction cost of $250,000 and a depreciated book value of $110,000. The appraiser estimates current replacement cost new at $400,000 and accrued depreciation from all causes at $100,000. What is the indicated site value?
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Previous Question
The subject site contains 7,500 square feet. Three cash-equivalent sales of similar vacant sites indicate $45, $48, and $51 per square foot. Based on the mean price per square foot, what is the indicated land value?
Next Question
In a hypothetical subdivision cash-flow model, a supported remediation payment of $350,000 occurs exactly six months after the valuation date. Using a 14% effective annual discount rate with compound fractional-year discounting, what is that payment’s present value, rounded to the nearest $100? This asks only for the payment’s present value, not the property’s total environmental value effect.