A home on a large tract is valued at $620,000 including the land it needs. The remaining excess land could be sold separately and contributes a net $95,000 after separation costs. What is the total indicated value?
Correct Answer
D) $715,000
Excess land is not needed to support the existing improvements and can be separately valued. Its net contribution is added: $620,000 + $95,000 = $715,000. Subtracting it ($525,000) or ignoring it ($620,000) misstates the whole property.
Why This Is the Correct Answer
Option D is correct because excess land can be separately valued and its net contribution is added to the value of the improved site. The home with its needed land is $620,000, and the excess land contributes a net $95,000 after separation costs. So $620,000 + $95,000 = $715,000.
Why the Other Options Are Wrong
Option A: $620,000
Option A, $620,000, values only the home and the land it needs. It ignores the $95,000 net contribution of the excess land; the correct total is $620,000 + $95,000 = $715,000.
Option B: $525,000
Option B, $525,000, comes from subtracting the excess land: $620,000 - $95,000 = $525,000. Excess land adds value, so it should be added: $620,000 + $95,000 = $715,000.
Option C: $95,000
Option C, $95,000, is only the net contribution of the excess land. It leaves out the $620,000 home and needed land; the whole property is $620,000 + $95,000 = $715,000.
Excess land is extra value
Excess land can stand alone and sell, so add its net value on top of the home and the land the home needs.
How to use: Use this when a question gives a value for a home site plus separable extra land.
Exam Tip
When land is described as excess and separately salable, add its net contribution; do not subtract it or treat it as the whole value.
Common Mistakes to Avoid
- -Subtracting excess land value instead of adding it
- -Ignoring excess land when it is separately marketable
- -Confusing excess land with surplus land that cannot be sold separately
Concept Deep Dive
Analysis
This question tests the treatment of excess land. Excess land is not needed to support the existing improvements and can be sold separately, so its net contribution is added to the value of the home and its needed land. The calculation is $620,000 + $95,000 = $715,000.
Background Knowledge
Excess land is land not needed to serve the existing improvements that can be separated and sold or used independently. Surplus land, by contrast, is extra land that cannot be separately sold. Because excess land has its own highest and best use, its value is estimated separately and added to the value of the improved site.
Real-World Application
An appraiser values a farmhouse on a large tract where a back parcel has road frontage and could be split off. Market data supports a value for the house with its needed acreage and a separate net value for the back parcel after survey and subdivision costs. The appraiser adds the two to reach the total indicated value.
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