Vacant lots in a subdivision sell for about $80,000 while finished homes there sell for about $400,000. Applying that relationship to a subject home that sold for $525,000, what site value does allocation indicate?
Correct Answer
D) $105,000
Why this is correct: The allocation method applies a market-derived land-to-total-value ratio to a property. First, find the ratio from market data: $80,000 (lot value) ÷ $400,000 (improved value) = 0.20 or 20%. Then apply that ratio to the subject: 20% × $525,000 (subject sale price) = $105,000 estimated site value. Why the other choices are wrong: "$80,000" is the lot value from the subdivision, not adjusted for the subject. "$120,000" might come from a different ratio (e.g., $80,000/$400,000 = 0.1667, incorrectly rounded). "$131,250" incorrectly reverses the ratio (assumes land is 25% of total). Exam tip: Allocation: (Lot Value / Improved Value) × Subject Value = Estimated Subject Lot Value.
Why This Is the Correct Answer
Why this is correct: The allocation method applies a market-derived land-to-total-value ratio to a property. First, find the ratio from market data: $80,000 (lot value) ÷ $400,000 (improved value) = 0.20 or 20%. Then apply that ratio to the subject: 20% × $525,000 (subject sale price) = $105,000 estimated site value. Why the other choices are wrong: "$80,000" is the lot value from the subdivision, not adjusted for the subject. "$120,000" might come from a different ratio (e.g., $80,000/$400,000 = 0.1667, incorrectly rounded). "$131,250" incorrectly reverses the ratio (assumes land is 25% of total). Exam tip: Allocation: (Lot Value / Improved Value) × Subject Value = Estimated Subject Lot Value.
More Land/Site Questions
Under which condition is the land residual technique most applicable?
Why can the same physical parcel carry different values in two assignments?
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?
Why does a developer's required profit rise for a longer subdivision project?
How does holding cost enter the valuation of land bought for future development?
Excess land is best described as land that has which characteristic?
Plottage value arises in which of the following situations?
Which of the following is an off-site improvement rather than a site improvement?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam