In a market where land represents 25 percent of value, a property sold for $480,000. What does allocation indicate for the site?
Correct Answer
D) $120,000
Why this is correct: The correct answer, '$120,000,' is found by calculating 25% of the total sale price: 0.25 × $480,000 = $120,000. The allocation method applies a market-derived ratio (here, 25% for land) to a sale price to estimate the land value component. Why the other choices are wrong: '$96,000' is wrong (20% of $480,000). '$132,000' is wrong (27.5% of $480,000). '$150,000' is wrong (31.25% of $480,000). These are incorrect applications of the percentage. Exam tip: For allocation problems, remember: Land Value = Total Sale Price × (Land Ratio % / 100). Double-check your decimal placement.
Why This Is the Correct Answer
Why this is correct: The correct answer, '$120,000,' is found by calculating 25% of the total sale price: 0.25 × $480,000 = $120,000. The allocation method applies a market-derived ratio (here, 25% for land) to a sale price to estimate the land value component. Why the other choices are wrong: '$96,000' is wrong (20% of $480,000). '$132,000' is wrong (27.5% of $480,000). '$150,000' is wrong (31.25% of $480,000). These are incorrect applications of the percentage. Exam tip: For allocation problems, remember: Land Value = Total Sale Price × (Land Ratio % / 100). Double-check your decimal placement.
More Land/Site Questions
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Why can the same physical parcel carry different values in two assignments?
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Why does a developer's required profit rise for a longer subdivision project?
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