The allocation method of site valuation assumes that a typical ratio exists between land value and total property value for similar properties in comparable locations at a given time. On which principles is this method based?
Correct Answer
A) Balance and contribution
The allocation method rests on balance and contribution, which hold that a typical ratio between land value and total property value exists for similar properties. The other pairs describe substitutes and market shifts, future benefits and outside influences, or neighborhood similarity, none of which supplies a land-to-total ratio.
Why This Is the Correct Answer
Option A is correct because the allocation method relies on balance and contribution, which hold that a typical ratio between land value and total property value exists for similar properties in comparable locations at a given time.
Why the Other Options Are Wrong
Option B: Substitution and change
Option B, substitution and change, underlies sales comparison and the need for current data. Neither principle says a typical land-to-total ratio exists.
Option C: Anticipation and externalities
Option C, anticipation and externalities, concerns expected future benefits and off-site influences. Neither one is the basis for allocating a share of value to the site.
Option D: Conformity and progression
Option D, conformity and progression, concerns neighborhood similarity and lower-value homes helped by higher-value neighbors. They do not supply a land-to-total value ratio.
Allocation splits by balance
Allocation assumes land and building share total value in a typical balance, each contributing its part.
How to use: Use this to recall the principles behind the allocation and extraction methods of site valuation.
Exam Tip
Link the allocation method to balance and contribution, and the sales comparison approach to substitution.
Common Mistakes to Avoid
- -Linking the allocation method to substitution
- -Applying a land ratio from dissimilar properties or a different time
- -Treating an allocated site value as more reliable than direct site sales
Concept Deep Dive
Analysis
This definition question ties a site valuation technique to its underlying principles. A typical land-to-total ratio assumes land and improvements combine in a characteristic proportion, which is balance, with each part contributing a share of the whole, which is contribution.
Background Knowledge
The allocation method estimates site value by applying a typical land-to-total value ratio to an improved property's total value. It is used mainly where vacant land sales are scarce and is generally less reliable than direct sales comparison of sites.
Real-World Application
In a built-out subdivision with no recent lot sales, an appraiser finds that sites typically represent about a quarter of total value in similar neighborhoods. She applies that ratio as one indicator of the subject's site value and notes its limits.
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