Comparable sales indicate that land accounts for 28% of total property value. An improved property is valued at $1,650,000. What land value does allocation indicate?
Correct Answer
A) $462,000
Land allocation is $1,650,000 × 28% = $462,000. 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 the allocation method assigns the supported land share of total value to the site. Applying 28% gives $1,650,000 × 0.28 = $462,000.
Why the Other Options Are Wrong
Option B: $1,650,000
Option B, $1,650,000, is the entire improved property value with no allocation. Land is only 28% of it: $1,650,000 × 0.28 = $462,000.
Option C: $1,188,000
Option C, $1,188,000, is the improvement share: $1,650,000 × 0.72 = $1,188,000. The land share is $1,650,000 × 0.28 = $462,000.
Option D: $46,200
Option D, $46,200, misplaces the decimal by applying 2.8%: $1,650,000 × 0.028 = $46,200. The correct land share is $462,000.
Land share, not building share
The land percentage times the total gives land; the leftover percentage belongs to the improvements.
How to use: Use this to confirm which share an allocation question asks for.
Exam Tip
Check that your answer is the smaller land share and that the percentage was converted to a decimal correctly.
Common Mistakes to Avoid
- -Reporting the improvement share as land value
- -Converting 28% to 0.028
- -Applying a ratio without market support
Concept Deep Dive
Analysis
This question tests a straightforward allocation calculation. The supported land ratio is applied to the improved property value. The distractors use the whole value, the improvement share or a decimal error.
Background Knowledge
The allocation method relies on a typical land-to-total ratio extracted from comparable sales in the market. It is a supporting technique, best used when vacant land sales are scarce and the ratio is well supported.
Real-World Application
An appraiser valuing a house in a built-out neighborhood has no recent land sales. Extracting land ratios from several improved sales where land values were known, the appraiser applies a supported 28% ratio to estimate land value.
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Previous Question
Vacant lots in a subdivision sell for about $80,000 while finished homes there sell for about $400,000. Applying that relationship to a subject home that sold for $525,000, what site value does allocation indicate? Assume the stated land ratio is market-supported and applicable to the subject.
Next Question
An appraiser extracted site value from the $500,000 cash sale of a heavily improved house. A review finds that the improvements contribute $420,000 and that the appraiser's estimate of that contribution was 5% too high. By what percentage of the correct site value was the site understated?