The subdivision development method concludes site value by:
Correct Answer
D) Discounting projected lot revenues less costs over the sellout
Why this is correct: The subdivision development method concludes site value by discounting projected lot revenues less costs over the sellout. This accounts for the timing difference: development costs are incurred early, while sales revenue is received over the sellout period. The present value of the net income stream is the site value. Why the other choices are wrong: Adding all development costs to the raw land price would overstate value by ignoring revenue timing. Multiplying the lot count by the average sale price ignores all costs and the time value of money. Capitalizing a single year of rent is not part of this method; it's an income approach for stabilized properties. Exam tip: This method hinges on a discounted cash flow analysis of net lot sales over time.
Why This Is the Correct Answer
Why this is correct: The subdivision development method concludes site value by discounting projected lot revenues less costs over the sellout. This accounts for the timing difference: development costs are incurred early, while sales revenue is received over the sellout period. The present value of the net income stream is the site value. Why the other choices are wrong: Adding all development costs to the raw land price would overstate value by ignoring revenue timing. Multiplying the lot count by the average sale price ignores all costs and the time value of money. Capitalizing a single year of rent is not part of this method; it's an income approach for stabilized properties. Exam tip: This method hinges on a discounted cash flow analysis of net lot sales over time.
More land-or-site-valuation Questions
Under which condition is the land residual technique most applicable?
What is the appraiser's obligation when a site's legal description does not match its apparent physical boundaries?
Why can the same physical parcel carry different values in two assignments?
A site differs from land in that a site is best described as which of the following?
In a built-up area where no vacant land has sold for years, which approach to site value is the usual fallback?
How is entrepreneurial profit treated in the subdivision development method?
A land comparable sold 18 months ago in a market rising about 4 percent a year. What adjustment direction applies?
In a land residual analysis for a proposed office development, the appraiser estimates total annual net operating income (NOI) will be $1,250,000. The improvement value, derived via the cost approach, is $15,000,000. Market evidence indicates a 7.0% overall capitalization rate is appropriate for similar improved properties. What is the indicated land value?
A developer plans a 36-lot residential subdivision on raw land. Each lot is expected to sell for $85,000. Total development costs (excluding land) are $1,420,000, including $220,000 for entrepreneurial incentive. The developer requires a 12% annual yield on invested capital over a 3-year development period. Using the subdivision development method, what is the maximum price the developer should pay for the land if all lots sell at the projected price and timing?
In applying the land residual technique to a proposed subdivision, an appraiser estimates that the time required to fully absorb all lots will be 6 years. The developer requires a 10% annual yield on invested capital. Which discounting approach is most appropriate for converting future net proceeds to present value?
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