Using the allocation method, market evidence supports a typical land-to-total-property-value ratio of 25% for similar improved properties in the subject’s location. An improved comparable sold for a cash-equivalent $960,000. What land (site) contribution is indicated?
Correct Answer
B) $240,000
Land allocation is $960,000 × 25% = $240,000. 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 B is correct because the land allocation is $960,000 × 25% = $240,000. The allocation method assigns a supported portion of total value to the site. The complementary 75% represents the non-land component.
Why the Other Options Are Wrong
Option A: $960,000
Option A, $960,000, is the full sale price of the improved property with no allocation applied. The land share is $960,000 × 0.25 = $240,000.
Option C: $720,000
Option C, $720,000, is the non-land share: $960,000 × 0.75 = $720,000. The land contribution is $960,000 × 0.25 = $240,000.
Option D: $24,000
Option D, $24,000, misplaces the decimal by using 2.5% instead of 25%: $960,000 × 0.025 = $24,000. The correct figure is $960,000 × 0.25 = $240,000.
Ratio times total equals land
Land share percent times total value gives land; one minus that percent times total value gives improvements.
How to use: Use this to check which share of the total a question is asking for.
Exam Tip
Confirm whether the question asks for the land share or the improvement share; both figures often appear among the choices.
Common Mistakes to Avoid
- -Reporting the improvement share instead of the land share
- -Misplacing the decimal when converting a percentage
- -Applying a ratio not supported for the subject's market
Concept Deep Dive
Analysis
This question tests applying a market-supported land-to-total ratio. Under the allocation method, multiply the total property value by the land ratio to find the land contribution. The remaining share represents the improvements.
Background Knowledge
In the allocation method, a portion of total property value is allocated to the site using a ratio between land and total value. The ratio must be supported for the relevant market, property type and interests. Allocation is often used when vacant land sales are scarce.
Real-World Application
In a fully developed neighborhood with no vacant lot sales, an appraiser finds market evidence that land typically represents about a quarter of total value for similar homes. The appraiser applies that supported ratio to an improved sale as one indication of site value.
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