An improved property sold at a market-level price of $1,600,000. Sales of similar properties indicate a land-to-total-value ratio of 0.28. What is the indicated land value by allocation?
Correct Answer
A) $448,000
Land = $1,600,000 × 0.28 = $448,000. The indicated result is $448,000. Common errors: reporting the improvement share instead of the land share gives $1,152,000; dividing by the ratio instead of multiplying gives $5,714,286; not applying the land ratio gives $1,600,000.
Why This Is the Correct Answer
Option A is correct because the allocation method gives land = $1,600,000 × 0.28 = $448,000. The remaining 72% of the price represents the improvements.
Why the Other Options Are Wrong
Option B: $1,152,000
Option B, $1,152,000, is wrong because it is the improvement share ($1,600,000 × (1 − 0.28)) rather than the land share. Land is $1,600,000 × 0.28 = $448,000.
Option C: $1,600,000
Option C, $1,600,000, is wrong because it is the full improved sale price with no land ratio applied. Land is $1,600,000 × 0.28 = $448,000.
Option D: $5,714,286
Option D, $5,714,286, is wrong because it divides by the ratio ($1,600,000 ÷ 0.28) instead of multiplying. The correct land value is $1,600,000 × 0.28 = $448,000.
Part is smaller than whole
Land is a part of the total, so the allocated land value must be less than the sale price.
How to use: Use this sanity check to reject any allocation answer larger than the total price.
Exam Tip
If an answer exceeds the improved sale price, it came from dividing by the ratio and cannot be the land allocation.
Common Mistakes to Avoid
- -Dividing by the land ratio
- -Reporting the improvement share
- -Forgetting to apply the ratio at all
Concept Deep Dive
Analysis
This question tests the allocation method using a decimal land ratio. The appraiser multiplies the supportable improved sale price by the market-supported ratio to estimate land value.
Background Knowledge
In the allocation method, a portion of total property value is allocated to the site using a market-derived land-to-total ratio. The land value must be smaller than the total value, which is a quick check against dividing by the ratio by mistake.
Real-World Application
An appraiser in a fully developed area applies a market-supported land ratio to the subject's improved value after confirming the ratio holds for similar properties nearby. The result is used to support the site value in the cost approach.
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The subject vacant site is close to an operating sawmill. A comparable vacant site that is not close to a sawmill sold for $890,000. Paired land sales show a $150,000 discount for sawmill proximity. No other adjustments are necessary. What is the indicated land value of the subject?
Next Question
Parcel A is worth $155,000 alone and Parcel B is worth $145,000 alone. Market data indicate that the two parcels, once assembled, would have a combined value of $330,000. What are the assembled land value and the implied plottage for the combined site?