An improved property sold for a cash-equivalent $3,120,000. Its supported depreciated improvement contribution is $1,740,000. Using extraction, with no other property components or adjustments, what land indication results?
Correct Answer
B) $1,380,000
Subtract the supported improvement component from the whole-property sale: $3,120,000 − $1,740,000 = $1,380,000. This is extraction/value decomposition. The income land-residual technique instead allocates net income and capitalizes the residual with suitable rates.
Why This Is the Correct Answer
Option B is correct because $3,120,000 - $1,740,000 = $1,380,000. Extraction estimates site value by subtracting the improvements' value contribution from total property value. No other components or adjustments apply.
Why the Other Options Are Wrong
Option A: $3,120,000
Option A, $3,120,000, is the whole-property sale price, including the improvements. The land indication is $3,120,000 - $1,740,000 = $1,380,000.
Option C: $1,740,000
Option C, $1,740,000, is the depreciated improvement contribution, not land. Land is $3,120,000 - $1,740,000 = $1,380,000.
Option D: $4,860,000
Option D, $4,860,000, adds the figures: $3,120,000 + $1,740,000. Extraction subtracts the improvement contribution, giving $1,380,000.
Whole minus building equals land
Sale price minus depreciated improvements equals land, whatever the size of the numbers.
How to use: Use this for any extraction problem that gives the improvement contribution directly.
Exam Tip
Large numbers do not change the method; subtract the improvement contribution once.
Common Mistakes to Avoid
- -Adding the improvement contribution to the sale price
- -Reporting the improvement value as land value
- -Mixing extraction with income capitalization steps
Concept Deep Dive
Analysis
This question tests extraction with larger figures. The land indication is the improved sale price less the supported depreciated improvement contribution. The distractors repeat given figures or add them.
Background Knowledge
Extraction can be applied to commercial and residential sales alike when the improvement contribution can be supported. The income land-residual technique is a separate method that allocates net income and capitalizes the land portion.
Real-World Application
An appraiser analyzing the sale of an older house in a built-out neighborhood estimates the depreciated contribution of the house. Subtracting it from the price provides a land indication to compare with scarce vacant lot sales.
More Land/Site Questions
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Which fact, if supported by competitive-market evidence, most directly supports a unit-price premium for an otherwise comparable site?
A rectangular site's frontage is doubled while its depth is halved, keeping area constant. What is the likely value effect in a retail district?
A downtown site's zoning height limit is reduced from six stories to three. Buyers in this market had been paying for six-story development potential. What effect on land value is most supportable?
A zoning change increases permitted density from four to eight units per acre. What is the likely effect on site value?
Using the allocation method, market evidence supports a typical land-to-total-property-value ratio of 28% for similar improved properties in the subject’s location. An improved comparable sold for $825,000. What land (site) contribution is indicated by applying that ratio?
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An appraiser is extracting site value from a $600,000 cash sale. The seller's records show an original construction cost of $250,000 and a depreciated book value of $110,000. The appraiser estimates current replacement cost new at $400,000 and accrued depreciation from all causes at $100,000. What is the indicated site value?
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Previous Question
An improved property sold twelve months before the effective date of an appraisal for $560,000 cash, when the improvements contributed $360,000. Paired vacant lot sales indicate that land values rose 6% over those twelve months. What site value does this sale indicate as of the effective date?
Next Question
A tract is proposed for subdivision into finished lots. Gross sellout of the lots is projected at $1,200,000. Non-land development, selling and holding costs total $650,000, and entrepreneurial incentive is $130,000. Ignoring cash-flow timing, what residual is available for the land?