Market extraction from recent improved sales supports a typical land-to-total-price allocation ratio of 23% for properties competitive with the subject. The subject’s improved fee-simple sale price (or reconciled improved value used as the allocation base) is $1,040,000. Per the allocation method (land = allocation ratio × total improved value), what land value is indicated?
Correct Answer
B) $239,200
Apply the stated land proportion: $1,040,000 × 23% = $239,200. The complementary proportion indicates the non-land component. The allocation ratio must be supported for competitive properties; it is not a universal national percentage.
Why This Is the Correct Answer
Option B is correct because allocation multiplies total improved value by the land ratio: $1,040,000 × 0.23 = $239,200. That is the portion attributed to land.
Why the Other Options Are Wrong
Option A: $1,040,000
Option A, $1,040,000, is the total improved value. Only 23% is allocated to land, giving $239,200.
Option C: $800,800
Option C, $800,800, is the improvement share: $1,040,000 × 0.77. The land share is $1,040,000 × 0.23 = $239,200.
Option D: $23,920
Option D, $23,920, uses 2.3% instead of 23%: $1,040,000 × 0.023. The correct result is $1,040,000 × 0.23 = $239,200.
Ratio times total
Allocation is a single multiplication: land ratio times total value. The remaining share belongs to the improvements.
How to use: Use this formula whenever a problem names the allocation method and gives a percentage.
Exam Tip
The land share and the building share add to the total. If your answer plus the improvement share does not equal the total, recheck.
Common Mistakes to Avoid
- -Reporting the improvement share as land value
- -Misreading 23% as 2.3%
- -Using an unsupported ratio
Concept Deep Dive
Analysis
This question tests the allocation method using a supported land-to-total ratio. Land value equals the ratio times the total improved value. Distractors use the full value, the improvement share, or a decimal error.
Background Knowledge
Allocation divides total value between land and improvements using ratios observed in comparable properties. It works best where such ratios are consistent and well supported. Market extraction from improved sales can help support the ratio.
Real-World Application
An appraiser in an older urban neighborhood with no recent vacant sales uses supported market ratios showing land is about 23% of total value. She applies that ratio to the subject's reconciled value to estimate site value.
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