An improved property sold for a cash-equivalent $1,120,000. Comparable improved sales indicate that land represents 22% of total property value. Using the allocation method, what is the land (site) contribution?
Correct Answer
A) $246,400
Land allocation is $1,120,000 × 22% = $246,400. The complementary proportion represents the non-land component. Apply only a ratio supported for the relevant market, property type and interests; this ratio reflects the market evidence given and is not a general rule.
Why This Is the Correct Answer
Option A is correct because the land allocation equals $1,120,000 × 0.22 = $246,400. In the allocation method, a supported portion of total property value is allocated to the site, and here that portion is 22%.
Why the Other Options Are Wrong
Option B: $1,120,000
Option B, $1,120,000, is the whole-property sale price, which includes the improvements. Only the 22% land share is the site contribution: $1,120,000 × 0.22 = $246,400.
Option C: $873,600
Option C, $873,600, is the complementary 78% share ($1,120,000 × 0.78), which represents the non-land component. The land share is $1,120,000 × 0.22 = $246,400.
Option D: $24,640
Option D, $24,640, misplaces the decimal by using 2.2% instead of 22%: $1,120,000 × 0.022 = $24,640. The correct calculation is $1,120,000 × 0.22 = $246,400.
Total times land share
Allocation is a slice of the whole: multiply total value by the land percentage to get the land slice.
How to use: Use this when a question gives a total value and a land-to-total ratio.
Exam Tip
Convert the percentage to a decimal carefully, and make sure you report the land share rather than the improvement share.
Common Mistakes to Avoid
- -Reporting the improvement share instead of the land share
- -Moving the decimal when converting the percentage
- -Applying a ratio not supported for the subject's market
Concept Deep Dive
Analysis
This question tests applying a market-supported allocation ratio to an improved sale price. Multiply the total property value by the land share to estimate the site contribution. The arithmetic is $1,120,000 × 22%.
Background Knowledge
The allocation method divides total property value between land and improvements using a ratio drawn from market evidence. It is most useful where vacant land sales are scarce. The ratio should match the market, property type and interest being appraised.
Real-World Application
An appraiser in a dense urban area with no recent vacant land sales finds that comparable improved sales support land at about 22% of total value. She applies that ratio to the subject's $1,120,000 sale to estimate a site contribution of $246,400.
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