An improved property has an indicated value of $2,050,000, and market data indicate a land allocation ratio of 22%. What is the indicated land value by allocation?
Correct Answer
B) $451,000
Land allocation is $2,050,000 × 22% = $451,000. 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 B is correct because allocation multiplies total value by the land ratio: $2,050,000 × 22% = $451,000. The remaining 78% represents the non-land component. The ratio must be supported for the relevant market and property type.
Why the Other Options Are Wrong
Option A: $2,050,000
Option A, $2,050,000, is the full improved-property value. It applies no allocation ratio; the land share is $2,050,000 × 22% = $451,000.
Option C: $1,599,000
Option C, $1,599,000, is the non-land share ($2,050,000 × 78% = $1,599,000), not the land. The land allocation is $2,050,000 × 22% = $451,000.
Option D: $45,100
Option D, $45,100, misplaces the decimal by using 2.2% instead of 22% ($2,050,000 × 0.022 = $45,100). The correct calculation is $2,050,000 × 0.22 = $451,000.
Ratio Times Total
Allocation takes a slice: land ratio times total value equals land. The leftover slice is the improvements.
How to use: Use this whenever a question gives a land-to-total ratio and a total value.
Exam Tip
Make sure you apply the land ratio, not its complement. Check that the decimal matches the stated percentage.
Common Mistakes to Avoid
- -Applying the complementary improvement ratio instead of the land ratio
- -Converting 22% to 0.022
- -Using a ratio from a different market or property type without support
Concept Deep Dive
Analysis
This question tests the allocation method of land valuation. A market-supported land-to-total ratio is multiplied by the improved property's indicated value to estimate land. Here the ratio is 22%, applied to $2,050,000.
Background Knowledge
In the allocation method, a portion of total property value is allocated to the site based on typical land-to-total ratios observed in the market. It is generally considered less reliable than direct sales comparison and is used when vacant land sales are scarce. The ratio applies only where it is supported for comparable properties and interests.
Real-World Application
In an established subdivision with no vacant lot sales, an appraiser finds that in newer nearby areas land typically represents about a fifth of total value. After confirming the ratio is reasonable for the subject's market, the appraiser uses it as a supporting land indication.
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An appraiser is extracting site value from three improved sales in a subdivision. Sale 1 sold for $500,000, with improvements contributing $330,000. Sale 2 sold for $540,000, with improvements contributing $365,000. Sale 3 sold for $420,000 in a lender-forced foreclosure, with improvements contributing $330,000, and the appraiser finds no basis for adjusting it. The appraiser concludes to the mean of the usable sales. What is the indicated site value?
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