In a neighborhood where land typically represents 22 percent of total property value, a house sells for $425,000. What does the allocation method indicate for the site?
Correct Answer
A) $93,500
Land allocation is $425,000 × 22% = $93,500. The complementary proportion represents the non-land component. Apply only a ratio supported for the relevant market, property type and interests; the supplied proportion is an exercise input, not a general rule.
Why This Is the Correct Answer
Option A is correct because allocation assigns the typical land share of total value to the site. Applying 22% gives $425,000 × 0.22 = $93,500.
Why the Other Options Are Wrong
Option B: $425,000
Option B, $425,000, is the full sale price with no allocation. Land is 22% of it: $425,000 × 0.22 = $93,500.
Option C: $331,500
Option C, $331,500, is the improvement share: $425,000 × 0.78 = $331,500. The site share is $425,000 × 0.22 = $93,500.
Option D: $9,350
Option D, $9,350, misplaces the decimal by applying 2.2%: $425,000 × 0.022 = $9,350. The correct site value is $93,500.
Percent of price is land
Multiply the sale price by the land percentage; the remaining percentage is the house.
How to use: Use this to solve allocation questions in one step.
Exam Tip
Convert the percentage carefully and pick the land share, not its complement.
Common Mistakes to Avoid
- -Reporting the improvement share as site value
- -Converting 22% to 0.022
- -Applying a ratio from a different market
Concept Deep Dive
Analysis
This question tests a basic allocation calculation. The typical land ratio is applied to the sale price to indicate the site share. Be careful with the decimal and with which share is asked for.
Background Knowledge
Allocation divides property value between land and improvements using a ratio typical for the neighborhood. The ratio must be supported for the relevant market and property type, and the method is generally used as support rather than as a primary indicator.
Real-World Application
In an older neighborhood with no vacant lots, an appraiser finds that land typically accounts for about 22% of value. The appraiser applies that ratio to a home's sale price to estimate the site value.
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For a vacant site, several verified recent sales have the same competitive market and highest and best use; their relevant differences can be supported. Which method provides the most direct land-value indication from those data?
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