An improved property sold for $1,760,000 on a cash-equivalent basis. For similar properties in the market area, land represents 25% of total value. What land value does the allocation method indicate?
Correct Answer
C) $440,000
Land allocation is $1,760,000 × 25% = $440,000. The complementary proportion represents the non-land component. Apply only a ratio supported for the relevant market, property type and interests; a land ratio is specific to its market, not a general rule.
Why This Is the Correct Answer
Option C is correct because the allocation method multiplies the improved sale price by the market-supported land ratio: $1,760,000 × 25% = $440,000. The remaining 75% represents the improvement component.
Why the Other Options Are Wrong
Option A: $1,760,000
Option A, $1,760,000, is wrong because it is the entire improved sale price with no land ratio applied. The land allocation is $1,760,000 × 25% = $440,000.
Option B: $1,320,000
Option B, $1,320,000, is wrong because it is the improvement share ($1,760,000 × 75%) rather than the land share. Land is $1,760,000 × 25% = $440,000.
Option D: $44,000
Option D, $44,000, is wrong because it misplaces the decimal, using 2.5% instead of 25% ($1,760,000 × 0.025). The correct land value is $1,760,000 × 0.25 = $440,000.
Ratio times total
Allocation is simple multiplication: the land's share of the pie times the size of the whole pie.
How to use: Use this to recognize allocation problems and to avoid dividing by the ratio.
Exam Tip
Check that your answer is smaller than the total sale price and matches the land percentage, not the improvement percentage.
Common Mistakes to Avoid
- -Reporting the improvement share instead of the land share
- -Misplacing the decimal when converting the percentage
- -Using a ratio not supported for the subject's market
Concept Deep Dive
Analysis
This question tests the allocation method of land valuation. A market-supported land-to-total ratio is applied to an improved sale price to allocate a portion of the total to the land.
Background Knowledge
In the allocation method, a portion of total property value is allocated to the site using a land-to-total ratio derived from the market. The method is most reliable when the ratio is supported for the same market, property type and property interest, and it is often used when vacant land sales are scarce.
Real-World Application
In a built-out neighborhood with no recent vacant lot sales, an appraiser studies older areas where land and improved sales both exist to derive a typical land-to-total ratio. The appraiser applies that supported ratio to the subject's improved value to estimate site value.
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Previous Question
Four parcels assembled under single ownership (standard appraisal guidance assemblage) support separate as-is values of $220,000, $310,000, $195,000, and $175,000. After assemblage for a higher-utility use, the combined site is valued at $1,080,000. Assemblage costs (legal, demolition, holding, and related) total $95,000. What is the indicated net plottage value (gross plottage − assemblage costs)?
Next Question
The subject property is an 8,000-sf vacant lot. No vacant lots have sold recently in the subdivision, but a house on a similar 10,000-sf lot sold for $420,000 cash. The improvements on that property contribute $270,000, and lots in the subdivision trade on a price-per-square-foot basis. What is the indicated value of the subject lot?