An improved property has a value of $1,750,000. Sales of similar properties in the market area indicate that land accounts for 22% of total value. What is the indicated land value by allocation?
Correct Answer
A) $385,000
Land allocation is $1,750,000 × 22% = $385,000. 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 A is correct because land equals improved value times the land ratio: $1,750,000 x 0.22 = $385,000. The remaining 78% represents the non-land component. The ratio is specific to this market, not a general rule.
Why the Other Options Are Wrong
Option B: $1,750,000
Option B, $1,750,000, reports the whole improved property value without applying the land ratio. Land is $1,750,000 x 0.22 = $385,000.
Option C: $1,365,000
Option C, $1,365,000, applies the non-land share instead of the land share: $1,750,000 x 0.78 = $1,365,000. Land is $1,750,000 x 0.22 = $385,000.
Option D: $38,500
Option D, $38,500, misplaces the decimal in the 22% ratio, using 0.022: $1,750,000 x 0.022 = $38,500. The correct calculation is $1,750,000 x 0.22 = $385,000.
Percent of the pie
The land ratio tells you what percent of the whole pie belongs to the land.
How to use: Use this image to multiply the total by the land percentage, not the improvement percentage.
Exam Tip
With a land ratio below 50%, the land value must be less than half the total; eliminate answers above that.
Common Mistakes to Avoid
- -Using the improvement share instead of the land share
- -Writing 22% as 0.022
- -Applying a ratio not supported by local data
Concept Deep Dive
Analysis
This question tests the allocation method using a 22% land ratio. The improved property value is multiplied by the market-supported land ratio to estimate land value. The candidate must apply the land share and convert the percentage correctly.
Background Knowledge
The allocation method allocates a portion of total property value to the site using a typical land-to-total ratio. Ratios vary by market, property type and age of improvements, so they must be supported by local evidence. The method is commonly used where vacant land sales are scarce.
Real-World Application
An appraiser in a mature urban neighborhood has no vacant lot sales. Using market-supported land-to-total ratios from similar properties, the appraiser allocates part of the subject's value to the site.
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