The allocation method estimates land value as a market-supported land-to-total-property ratio applied to the subject’s supported overall value. Supported overall value is $1,650,000 and the supported land allocation ratio is 19%. What indicated land value by allocation results?
Correct Answer
C) $313,500
Land allocation is $1,650,000 × 19% = $313,500. The complementary proportion represents the non-land component. Apply only a ratio supported for the relevant market, property type and interests; the supplied proportion is an exercise input, not a general rule.
Why This Is the Correct Answer
Option C is correct because allocation assigns a supported portion of total value to the site. The calculation is $1,650,000 × 0.19 = $313,500. The remaining 81% represents the non-land component.
Why the Other Options Are Wrong
Option A: $1,650,000
Option A, $1,650,000, is the supported overall value, not the land portion. The land share is $1,650,000 × 0.19 = $313,500.
Option B: $1,336,500
Option B, $1,336,500, is the non-land share: $1,650,000 × 0.81 = $1,336,500 (or $1,650,000 − $313,500). The question asks for land, which is $1,650,000 × 0.19 = $313,500.
Option D: $31,350
Option D, $31,350, results from a decimal error, using 1.9% instead of 19%: $1,650,000 × 0.019 = $31,350. The correct land value is $1,650,000 × 0.19 = $313,500.
Land slice, not whole pie
Allocation multiplies total value by the land percentage to get the land slice. The rest is improvements.
How to use: Use this to confirm your answer is the land portion after multiplying by the ratio.
Exam Tip
Estimate first: 19% of about $1.65 million is roughly $300,000, which quickly rules out answers off by a factor of ten.
Common Mistakes to Avoid
- -Reporting the improvement share as land value
- -Misplacing the decimal in the percentage
- -Applying an unsupported rule-of-thumb ratio
Concept Deep Dive
Analysis
This question tests the allocation method again with different inputs. Apply the supported land ratio to the supported overall value to isolate land value. Avoid reporting the total, the improvement share, or a decimal-shifted result.
Background Knowledge
The allocation method is typically used where vacant land sales are scarce. It depends on a land-to-total ratio supported by market evidence for similar properties and locations, and it is generally considered less reliable than direct land sales comparison.
Real-World Application
An appraiser valuing a house in a built-out subdivision has no recent vacant lot sales. She supports a land-to-total ratio from sales of similar properties in comparable neighborhoods and applies it to the subject's overall value as a secondary land indication.
More Land/Site Questions
How should an appraiser account for a site's access to public sewer compared with competing sites that require septic systems?
Which fact, if supported by competitive-market evidence, most directly supports a unit-price premium for an otherwise comparable site?
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