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?
Correct Answer
C) $231,000
Land allocation is $825,000 × 28% = $231,000. 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 C is correct because the allocation method assigns a portion of total value to the site. Applying the supported 28% ratio gives $825,000 × 0.28 = $231,000 as the land contribution.
Why the Other Options Are Wrong
Option A: $825,000
Option A, $825,000, is the entire improved sale price with no allocation applied. Only 28% is attributed to land: $825,000 × 0.28 = $231,000.
Option B: $594,000
Option B, $594,000, is the improvement share: $825,000 × 0.72 = $594,000. The land share uses the 28% ratio, giving $231,000.
Option D: $23,100
Option D, $23,100, results from a decimal error, applying 2.8% instead of 28%: $825,000 × 0.028 = $23,100. The correct land share is $825,000 × 0.28 = $231,000.
Ratio times total equals land
Multiply the whole price by the land percentage to get land; the rest of the price belongs to the improvements.
How to use: Use this to check that you applied the land ratio, not its complement.
Exam Tip
Confirm the decimal placement of the percentage and make sure you report the land share, not the building share.
Common Mistakes to Avoid
- -Reporting the improvement share instead of the land share
- -Misplacing the decimal in the percentage
- -Using a ratio not supported for the subject's market
Concept Deep Dive
Analysis
This question tests the allocation method. A market-supported land-to-total ratio is applied to the improved property's price to indicate the site's share. The math is a single multiplication, so the challenge is picking the land share rather than the improvement share or a misplaced decimal.
Background Knowledge
Allocation divides total property value between land and improvements using a typical ratio derived from the market. It is most useful when vacant land sales are scarce, and the ratio must be supported for the specific market and property type.
Real-World Application
In a built-out suburb with no vacant lot sales, an appraiser studies older sales where land values were known and finds land typically represents about 28% of total value. The appraiser applies that supported ratio to estimate the site value of the subject.
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