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?
Correct Answer
C) $464,400
Land allocation is $1,720,000 × 27% = $464,400. 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 C is correct because $1,720,000 × 0.27 = $464,400. Allocation assigns a supported portion of total property value to the site. The 27% ratio applied to the indicated value gives the land indication.
Why the Other Options Are Wrong
Option A: $1,720,000
Option A, $1,720,000, is the improved property's total value with no ratio applied. The land share is $1,720,000 × 0.27 = $464,400.
Option B: $1,255,600
Option B, $1,255,600, is the improvement share: $1,720,000 × (1 − 0.27) = $1,255,600. The land share is $1,720,000 × 0.27 = $464,400.
Option D: $46,440
Option D, $46,440, misplaces the decimal in the ratio: $1,720,000 × 0.027 = $46,440. The correct ratio is 0.27, giving $464,400.
Percent to decimal, then multiply
Convert 27% to 0.27 by moving the decimal two places, then multiply by total value.
How to use: Use this step whenever an allocation ratio is given as a percentage.
Exam Tip
The land share should be less than half of total value when the ratio is under 50%, so a large figure signals the complement was used.
Common Mistakes to Avoid
- -Using 1 minus the ratio and reporting the improvement value
- -Converting 27% to 0.027 instead of 0.27
Concept Deep Dive
Analysis
This question tests applying a supported allocation ratio to an improved property's indicated value. The land share is the ratio times the total value. Errors come from reporting the total, the improvement share or misplacing the decimal.
Background Knowledge
Allocation relies on a typical land-to-total relationship drawn from the market. A ratio given in an exam problem is an input, not a general rule. In practice the ratio must be supported for the specific market and property type.
Real-World Application
An appraiser valuing a $1,720,000 house finds that land typically makes up 27% of value for similar homes in the area. Allocation indicates a land value of $464,400.
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Previous Question
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?
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A competitive improved property sold for $500,000. Market data indicate a land-to-value ratio of 0.30 for similar properties. What is the indicated land value by the allocation method?