In a neighborhood where market evidence supports a 35% land-to-total-value ratio, an improved property sells for $812,000. Using the allocation method, what site value is indicated?
Correct Answer
A) $284,200
Land allocation is $812,000 × 35% = $284,200. 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 applies the supported land ratio to total value: $812,000 × 0.35 = $284,200. This portion of total value is allocated to the site. The ratio is an input that must be supported for the relevant market.
Why the Other Options Are Wrong
Option B: $812,000
Option B, $812,000, is the whole property price with no allocation applied. It includes the improvements; the site portion is $812,000 × 0.35 = $284,200.
Option C: $527,800
Option C, $527,800, applies the complementary 65% ratio: $812,000 × 0.65 = $527,800. That is the non-land (improvement) share, not the site value of $812,000 × 0.35 = $284,200.
Option D: $28,420
Option D, $28,420, results from misplacing the decimal, treating 35% as 3.5%: $812,000 × 0.035 = $28,420. The correct calculation is $812,000 × 0.35 = $284,200.
Allocate the land slice
Think of total value as a pie; the land ratio is the land slice, and the rest is improvements.
How to use: Use this to check you multiplied by the land share, not its complement.
Exam Tip
Confirm whether the ratio given is land-to-total or improvement-to-total before multiplying.
Common Mistakes to Avoid
- -Multiplying by the improvement share instead of the land share
- -Misplacing the decimal in the percentage
- -Applying an unsupported generic ratio from another market
Concept Deep Dive
Analysis
This question tests the allocation method of site valuation. The appraiser applies a market-supported land-to-total-value ratio to the improved property's price. Multiplying $812,000 by 35% gives the site value indication.
Background Knowledge
The allocation method estimates land value by applying a typical land-to-total-value ratio derived from the market to an improved property's value. It is most useful where vacant land sales are scarce. The ratio should be supported for the specific market, property type and interest being appraised.
Real-World Application
In a built-out subdivision with no recent vacant lot sales, an appraiser studies older lot sales and builder data showing land is about 35% of total value. She applies that supported ratio to the subject's indicated value as one land indication and notes the method's limits.
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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?