In comparable neighborhoods, the typical ratio of land value to total property value is 0.24 (24%). The subject's improved property value indication is $875,000. What site (land) value is indicated by allocation?
Correct Answer
A) $210,000
Land allocation is $875,000 × 24% = $210,000. 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 $875,000 × 0.24 = $210,000. Allocation assigns a portion of total property value to the site using a supported ratio. The 24% ratio applied to the subject's total value gives the land indication.
Why the Other Options Are Wrong
Option B: $875,000
Option B, $875,000, is the total improved property value with no ratio applied. The land share is $875,000 × 0.24 = $210,000.
Option C: $665,000
Option C, $665,000, is the improvement share: $875,000 × (1 − 0.24) = $665,000. The question asks for land, which is $875,000 × 0.24 = $210,000.
Option D: $21,000
Option D, $21,000, misplaces the decimal in the ratio: $875,000 × 0.024 = $21,000. The correct ratio is 0.24, giving $210,000.
Land share times total
Allocation multiplies the land percentage by total value; the rest belongs to the improvements.
How to use: Use this when a question gives a land-to-total ratio and a total value.
Exam Tip
Check that you used the land percentage, not its complement, since the improvement share often appears as a choice.
Common Mistakes to Avoid
- -Reporting the improvement share instead of the land share
- -Moving the decimal when converting a percentage to a decimal
Concept Deep Dive
Analysis
This question tests the allocation method with a supported land-to-total ratio. The ratio is multiplied by the subject's total improved value to find the land share. The complementary share represents the improvements.
Background Knowledge
Allocation estimates land value as a typical proportion of total property value in comparable properties. It is used mainly when vacant land sales are scarce. The ratio must be supported for the relevant market, property type and interests.
Real-World Application
In a fully developed subdivision, an appraiser finds builders' land typically represents about 24% of new home values. Applying that to an $875,000 home indicates a site value of $210,000.
More Land/Site Questions
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Which fact, if supported by competitive-market evidence, most directly supports a unit-price premium for an otherwise comparable site?
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Which site valuation method estimates land value by subtracting the depreciated cost of the improvements from the total sale price of an improved property?
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An appraiser is using the allocation method to estimate land value. Market data indicate a land-to-total value ratio of 27%, and the improved property's indicated value is $1,720,000. What is the indicated land value?