In a built-up area where no vacant land has sold for years, which approach to site value is the usual fallback?
Correct Answer
D) Extraction or allocation from improved sales
Why this is correct: In a built-up area with no recent vacant land sales, the usual fallback approaches to site value are extraction or allocation from improved sales. These methods derive land value from sales of improved properties. Extraction subtracts an estimated improvement value from the total sale price. Allocation applies a typical land-to-total-value ratio from the market to the sale price. Why the other choices are wrong: "Direct comparison with vacant sites elsewhere" is unreliable due to significant location differences that are hard to adjust for. "The subdivision development method of analysis" is for raw land being subdivided, not typically for built-up areas. "Capitalizing the ground rent under the lease" only works if the subject is under a ground lease. Exam tip: When vacant comps are absent, look to improved sales and use extraction or allocation.
Why This Is the Correct Answer
Why this is correct: In a built-up area with no recent vacant land sales, the usual fallback approaches to site value are extraction or allocation from improved sales. These methods derive land value from sales of improved properties. Extraction subtracts an estimated improvement value from the total sale price. Allocation applies a typical land-to-total-value ratio from the market to the sale price. Why the other choices are wrong: "Direct comparison with vacant sites elsewhere" is unreliable due to significant location differences that are hard to adjust for. "The subdivision development method of analysis" is for raw land being subdivided, not typically for built-up areas. "Capitalizing the ground rent under the lease" only works if the subject is under a ground lease. Exam tip: When vacant comps are absent, look to improved sales and use extraction or allocation.
More land-or-site-valuation Questions
Under which condition is the land residual technique most applicable?
What is the appraiser's obligation when a site's legal description does not match its apparent physical boundaries?
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?
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?
In applying the land residual technique to a proposed subdivision, an appraiser estimates that the time required to fully absorb all lots will be 6 years. The developer requires a 10% annual yield on invested capital. Which discounting approach is most appropriate for converting future net proceeds to present value?
An appraiser is valuing undeveloped land intended for a 40-lot subdivision. Market data indicates strong demand, but the only nearby comparable subdivision sold out in 3 years with steady monthly absorption. The subject site is larger, topographically constrained, and lacks existing infrastructure. Which factor most critically affects the reliability of using the comparable’s absorption rate in the subject’s land residual analysis?
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A comparable land sale included the seller financing the purchase at below-market interest. What adjustment is required?
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An appraiser is valuing land for a proposed townhouse subdivision using the subdivision development method. The site requires a $350,000 environmental remediation cost that will be incurred 6 months after project commencement. The developer’s required annual yield is 14%. What is the present value of the remediation cost to be deducted from gross lot sales?