Market extraction from recent improved sales supports a typical land-to-total-price allocation ratio of 27% for properties competitive with the subject. The subject’s improved fee-simple sale price (or reconciled improved value used as the allocation base) is $1,125,000. Per the allocation method (land = allocation ratio × total improved price), what indicated land value results?
Correct Answer
C) $303,750
Land allocation is $1,125,000 × 27% = $303,750. 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 C is correct because the allocation method gives land = ratio × total improved price: $1,125,000 × 27% = $303,750. The other 73% represents the improvements.
Why the Other Options Are Wrong
Option A: $1,125,000
Option A, $1,125,000, is wrong because it is the full improved price with no land ratio applied. Land is $1,125,000 × 0.27 = $303,750.
Option B: $821,250
Option B, $821,250, is wrong because it is the improvement share ($1,125,000 × 73%) rather than the land share. Land is $1,125,000 × 27% = $303,750.
Option D: $30,375
Option D, $30,375, is wrong because it misplaces the decimal, using 2.7% instead of 27% ($1,125,000 × 0.027). The correct figure is $1,125,000 × 0.27 = $303,750.
Multiply by land's share
Allocation equals the land percentage multiplied by the total improved price.
How to use: Use this formula directly whenever a question supplies a land-to-total ratio.
Exam Tip
Convert the percentage to a decimal carefully: 27% is 0.27, not 0.027.
Common Mistakes to Avoid
- -Reporting the improvement portion
- -Decimal placement errors
- -Using a ratio from non-competitive properties
Concept Deep Dive
Analysis
This question tests the allocation method using an extracted land-to-total ratio. The appraiser multiplies the improved price by the market-supported ratio to indicate land value.
Background Knowledge
Allocation estimates site value as a portion of total property value, using a ratio derived from market evidence such as extraction from recent improved sales. The ratio should come from properties competitive with the subject and reflect the same property rights.
Real-World Application
An appraiser extracts land values from several recent improved sales in a subdivision and finds land typically represents a consistent share of price. The appraiser applies that share to the subject's reconciled improved value to support the site value.
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An improved property, otherwise similar to the subject, sold for a cash-equivalent $1,560,000. In the market area, land typically represents 24% of total value. What land value does the allocation method indicate?
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