Land value may be indicated by extraction (residual): improved sale price minus depreciated improvement cost (RCNLD). Separately, allocation applies a market-supported land-to-total-value ratio to the improved sale. An improved sale closed at $1,580,000. Supported RCNLD of the improvements is $1,120,000. A market land-allocation ratio of 26% is also supported. Which statement correctly contrasts the two land indications from this sale?
Correct Answer
B) Allocation $410,800; extraction $460,000.
Allocation gives $1,580,000 × 26% = $410,800. Extraction gives $1,580,000 − $1,120,000 = $460,000. The two methods use different evidence and need not coincide; reconcile reliability instead of forcing equality. The complete pair, rather than a truncated single method result, is the answer.
Why This Is the Correct Answer
Option B is correct because allocation gives $1,580,000 × 26% = $410,800 and extraction gives $1,580,000 − $1,120,000 = $460,000. The two methods need not agree; the appraiser reconciles them based on reliability. This option assigns each figure to its correct method.
Why the Other Options Are Wrong
Option A: Allocation $460,000; extraction $410,800.
Option A, allocation $460,000 and extraction $410,800, swaps the two results. Allocation is $1,580,000 × 26% = $410,800, and extraction is $1,580,000 − $1,120,000 = $460,000.
Option C: Allocation $1,169,200; extraction $1,120,000.
Option C, allocation $1,169,200 and extraction $1,120,000, reports improvement figures instead of land. $1,169,200 is $1,580,000 × 74%, the improvement share, and $1,120,000 is the RCNLD itself; the land indications are $410,800 and $460,000.
Option D: Allocation $410,800; extraction $2,700,000.
Option D gives allocation $410,800 correctly but extraction $2,700,000, which adds the RCNLD to the price: $1,580,000 + $1,120,000. Extraction subtracts it, giving $460,000.
Allocate multiplies, extract subtracts
Allocation takes a share of the price (multiply by the ratio). Extraction takes the building out of the price (subtract the RCNLD).
How to use: Use this to match each land method to its arithmetic on paired-method questions.
Exam Tip
Compute both figures yourself first, then find the option that labels each one correctly; swapped pairs are a common trap.
Common Mistakes to Avoid
- -Swapping the allocation and extraction results
- -Reporting the improvement share as land value
- -Adding depreciated cost to the price instead of subtracting it
Concept Deep Dive
Analysis
This question tests the difference between allocation and extraction using one improved sale. Allocation multiplies the sale price by the land ratio, while extraction subtracts the depreciated improvement cost from the sale price. The two results differ because they rely on different evidence, and the answer must pair each figure with the right method.
Background Knowledge
In allocation, a portion of total property value is allocated to the site using a supported land-to-total ratio. In extraction, site value is estimated by subtracting the value contribution of the improvements from total property value. Both are used mainly where vacant land sales are scarce and should be reconciled rather than forced to match.
Real-World Application
An appraiser in a built-out suburb has one recent improved sale and good cost data. The appraiser runs both extraction and allocation, finds the indications differ by about $50,000, and explains which is more reliable in the reconciliation.
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Previous Question
A property consists of a primary building site valued at $250,000 plus 0.75 acre of excess land. The excess land has a market value of $60,000 per acre, net of separation costs, and is not included in the primary-site value. What is the indicated total land value?
Next Question
Land value may be indicated by extraction (residual): improved sale price minus depreciated improvement cost (RCNLD). Separately, allocation applies a market-supported land-to-total-value ratio to the improved sale. An improved sale closed at $1,450,000. Supported RCNLD of the improvements is $1,050,000. A market land-allocation ratio of 24% is also supported. Which statement correctly contrasts the two land indications?