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?
Correct Answer
B) $374,400
Land allocation is $1,560,000 × 24% = $374,400. 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 B is correct because allocation multiplies the improved sale price by the supported land ratio: $1,560,000 × 24% = $374,400. The remaining 76% represents the improvements.
Why the Other Options Are Wrong
Option A: $1,560,000
Option A, $1,560,000, is wrong because it is the full improved sale price without applying the 24% land ratio. Land is $1,560,000 × 0.24 = $374,400.
Option C: $1,185,600
Option C, $1,185,600, is wrong because it is the improvement share ($1,560,000 × 76%) instead of the land share. Land is $1,560,000 × 24% = $374,400.
Option D: $37,440
Option D, $37,440, is wrong because it misplaces the decimal, using 2.4% instead of 24% ($1,560,000 × 0.024). The correct value is $1,560,000 × 0.24 = $374,400.
Land slice of pie
The land ratio is the land's slice of the whole pie; multiply the pie by the slice.
How to use: Use this image to pick the land share, not the larger improvement share.
Exam Tip
After calculating, confirm the land share plus the improvement share adds back to the total sale price.
Common Mistakes to Avoid
- -Using the improvement share as land value
- -Decimal errors converting percentages
- -Applying an unsupported generic ratio
Concept Deep Dive
Analysis
This question tests the allocation method. The appraiser applies a market-supported land-to-total ratio to the improved property's sale price to estimate the land portion.
Background Knowledge
The allocation method assigns a portion of total property value to the site based on a typical land-to-total ratio found in the market. Its reliability depends on how well the ratio is supported for comparable properties in the same market and with the same property rights.
Real-World Application
An appraiser in an older urban area with no vacant lot sales studies newer subdivisions where builders report land as a typical share of total price. After confirming that ratio fits the subject's market, the appraiser applies it to estimate site value.
More Land/Site Questions
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Previous Question
A cash-equivalent vacant-site sale of $990,000 has 90 front feet. Market analysis supports applying its rate per front foot to an otherwise matched 78-front-foot subject. What indication results?
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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?