The subdivision development method is most appropriate for valuing which kind of holding?
Correct Answer
D) A tract with supported subdivision HBU and reliable project cash-flow evidence
Subdivision development analysis is relevant when subdivision is a supported highest and best use and lot pricing, development costs, incentive, approvals and absorption can be credibly modeled. Being legally divisible alone does not establish feasibility; improved land may also be analyzed for feasible redevelopment.
Why This Is the Correct Answer
Option D is correct because the subdivision development method estimates land value assuming that subdivision and development is the highest and best use of the parcel. It also requires a significant amount of data, such as development costs, profit margins, sales projections and lot pricing. A tract with supported subdivision highest and best use and reliable project cash-flow evidence meets both conditions.
Why the Other Options Are Wrong
Option A: Any infill lot, even without a development proposal
Option A says the method fits any infill lot, even without a development proposal. Without a supported subdivision highest and best use and credible project data, the method lacks a sound basis.
Option B: A leased site, with or without development potential
Option B says a leased site fits, with or without development potential. The method depends on subdivision being the highest and best use; a site without development potential does not support it.
Option C: An improved property with existing buildings and no subdivision analysis
Option C names an improved property with existing buildings and no subdivision analysis. Without analysis showing subdivision is the highest and best use, the method does not apply, although improved land can be studied for feasible redevelopment.
HBU first, data second
Subdivision must be the highest and best use, and there must be reliable data on prices, costs and absorption. Without both, choose another method.
How to use: Use this two-part check when asked whether the subdivision development method fits.
Exam Tip
Being legally divisible does not by itself establish feasibility; look for an answer that includes supported highest and best use.
Common Mistakes to Avoid
- -Applying the method to any parcel that could be divided
- -Using the method without reliable absorption and cost data
- -Skipping the highest and best use analysis
Concept Deep Dive
Analysis
This question tests when the subdivision development method is appropriate. The method assumes that subdivision and development is the highest and best use and requires substantial data on lot prices, costs, profit, and absorption. The best answer pairs a supported subdivision highest and best use with reliable cash-flow evidence.
Background Knowledge
The subdivision development method is a land valuation technique that projects lot sales, subtracts development and selling costs and developer incentive, and discounts the net cash flows over the sell-out period. It is data-intensive and sensitive to assumptions, so it is most credible when subdivision is the supported highest and best use and market evidence is strong.
Real-World Application
An appraiser values a large acreage tract on the edge of a growing suburb where nearby subdivisions are selling lots steadily. Zoning and utilities support residential subdivision, so the appraiser builds a lot sell-out model using local lot prices, development costs and absorption rates.
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The subject vacant site is near a solar farm. A comparable vacant site that is not near a solar array sold for $590,000. In the market area, paired land sales indicate a discount of $95,000 for solar farm proximity. No other adjustments apply. What is the indicated land value of the subject?
Next Question
An improved property sold for a cash-equivalent price of $800,000. Comparable-neighborhood analysis supports a typical land-to-total-property-value ratio of 25%. Separately, replacement cost new less depreciation of the improvements is estimated at $560,000. Using the allocation method and extraction method on the same sale, which pair correctly states the indicated site (land) values?