Which statement correctly distinguishes the allocation method from the extraction method of site valuation?
Correct Answer
B) Allocation uses a land ratio; extraction deducts improvements
Allocation multiplies compatible total property value by a market-supported land-to-total ratio. Extraction deducts supported improvement contribution from a compatible total value or sale. Reliability depends on the evidence for the ratio or improvement component; neither a property type nor a small building automatically establishes accuracy.
Why This Is the Correct Answer
Option B is correct because allocation estimates a ratio of site value to total property value and applies it, while extraction deducts the contributory value of the improvements from the sale price or total value. Both depend on how well the ratio or improvement contribution is supported by evidence.
Why the Other Options Are Wrong
Option A: Allocation deducts improvements; extraction uses a land ratio
Option A reverses the two methods. Deducting improvements is extraction, and applying a land ratio is allocation, so this statement mislabels both.
Option C: Both methods use discounted finished-lot cash flows
Option C describes the subdivision development (discounted cash flow) method, which discounts net proceeds from finished-lot sales. Neither allocation nor extraction relies on discounted finished-lot cash flows.
Option D: Both methods capitalize ground rent at a land rate
Option D describes ground rent capitalization, which converts land rent into value with a land capitalization rate. Allocation and extraction do not capitalize ground rent.
Allocation ratios, extraction subtracts
Allocation "allots" a share of the whole by a ratio; extraction "pulls out" the building to leave the land.
How to use: Use this when an answer choice pairs a method with an operation such as multiplying a ratio or subtracting improvements.
Exam Tip
Watch for answer choices that swap the two methods; check each method against its operation separately.
Common Mistakes to Avoid
- -Swapping the definitions of allocation and extraction
- -Confusing extraction with the income land residual technique
- -Assuming both methods must give the same answer
Concept Deep Dive
Analysis
This question tests whether you can tell apart two land valuation methods used when vacant land sales are scarce. Allocation applies a market-supported land-to-total value ratio to a total property value, while extraction subtracts the contributory value of the improvements from a total value or sale price. Matching each method to its arithmetic operation leads to the answer.
Background Knowledge
Allocation rests on the principles of balance and contribution, assuming a typical land-to-total ratio exists for similar properties in similar locations at a given time. Extraction treats a sale price as land plus depreciated improvements and solves for land. Both are most useful when vacant land sales are limited, and each is only as reliable as its supporting data.
Real-World Application
In a built-out suburb with no recent lot sales, an appraiser estimates site value two ways: applying a market-derived land ratio to a comparable home sale, and subtracting the depreciated cost of the home from the same sale. The two indications are then reconciled.
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?
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?
An appraiser is valuing a vacant site near a landfill. A similar vacant site that is not affected by the landfill sold for $480,000. Paired land sales indicate that proximity to the landfill lowers site prices by $70,000. No other adjustments apply. What is the indicated value of the subject site?
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?
Three parcels assembled under single ownership (standard appraisal guidance assemblage) support separate as-is values of $290,000, $340,000, and $250,000. After assemblage for a higher-utility use, the combined site is valued at $1,050,000. Assemblage costs (demolition, legal, holding, and related) total $55,000. What is the indicated net plottage (plottage increment after assemblage costs)?
A comparable commercial site with 65 front feet sold for a cash-equivalent price of $585,000. Per standard appraisal guidance, sale price per front foot is a vacant-land unit of comparison when frontage is a primary value determinant. The subject site has 72 front feet and is otherwise similar. What indicated land value does the front-foot unit support before other adjustments?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam
Previous Question
A parcel has no legal access to a public road. What is the principal effect on its value?
Next Question
Paired land sales show a discount of $170,000 for vacant sites near a biomass energy plant. A comparable vacant site without this proximity sold for $780,000. The subject has this proximity, which makes it inferior to the comparable. No other adjustments apply. What is the indicated land value?