What is the principal weakness of the allocation method?
Correct Answer
B) The typical ratio may not fit the subject property
The ratio must be supported for comparable property types, location, improvements, site utility and the relevant date. A typical aggregate ratio may not fit the subject; that applicability uncertainty limits reliability. A ground lease is not a prerequisite and residential properties are not prohibited.
Why This Is the Correct Answer
Option B is correct because the allocation method applies a typical ratio between land value and total property value, and that ratio may not fit the subject's property type, location, improvements, site utility or date. This applicability uncertainty is what limits its reliability.
Why the Other Options Are Wrong
Option A: It requires many recent sales of vacant parcels
Option A says allocation requires many recent sales of vacant parcels. In fact allocation is typically used when vacant land sales are scarce, so needing many vacant sales is not its weakness.
Option C: It cannot be applied to residential property at all
Option C says allocation cannot be applied to residential property at all. Allocation is commonly used for residential property, such as in built-up subdivisions; there is no such prohibition.
Option D: It depends on a ground lease already being in place
Option D says allocation depends on a ground lease already being in place. A ground lease is needed for ground rent capitalization, not for allocation, which works from total property value.
Typical ratio, atypical subject
A typical ratio is only as good as how typical the subject is.
How to use: Use this when asked for the weakness or limitation of the allocation method.
Exam Tip
Answers that claim a method is prohibited or requires an unrelated condition are usually distractors; look for the answer about data reliability.
Common Mistakes to Avoid
- -Thinking allocation needs many vacant land sales
- -Confusing allocation with ground rent capitalization
- -Assuming one area-wide ratio fits every property
Concept Deep Dive
Analysis
This question tests the main limitation of the allocation method. Allocation assumes a typical land-to-total ratio exists for similar properties in similar locations at a given time, so its reliability depends on whether that ratio truly fits the subject.
Background Knowledge
Allocation is based on the principles of balance and contribution. It is generally considered one of the weaker land valuation methods because the ratio may vary with property age, quality, location and market conditions. It is often used as a check on other methods or when better data are unavailable.
Real-World Application
An appraiser in a fully developed area uses a 25% land ratio from older tract homes, but the subject is a newly rebuilt luxury home on a similar lot. The ratio may not fit, so the appraiser gives the allocation result little weight.
More Land/Site Questions
How should an appraiser account for a site's access to public sewer compared with competing sites that require septic systems?
Which fact, if supported by competitive-market evidence, most directly supports a unit-price premium for an otherwise comparable site?
A rectangular site's frontage is doubled while its depth is halved, keeping area constant. What is the likely value effect in a retail district?
A downtown site's zoning height limit is reduced from six stories to three. Buyers in this market had been paying for six-story development potential. What effect on land value is most supportable?
A zoning change increases permitted density from four to eight units per acre. What is the likely effect on site value?
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?
An appraiser is valuing a vacant site near a landfill. A similar vacant site that is not affected by the landfill sold for $480,000. Paired land sales indicate that proximity to the landfill lowers site prices by $70,000. No other adjustments apply. What is the indicated value of the subject site?
An appraiser is extracting site value from a $600,000 cash sale. The seller's records show an original construction cost of $250,000 and a depreciated book value of $110,000. The appraiser estimates current replacement cost new at $400,000 and accrued depreciation from all causes at $100,000. What is the indicated site value?
Three parcels assembled under single ownership (standard appraisal guidance assemblage) support separate as-is values of $290,000, $340,000, and $250,000. After assemblage for a higher-utility use, the combined site is valued at $1,050,000. Assemblage costs (demolition, legal, holding, and related) total $55,000. What is the indicated net plottage (plottage increment after assemblage costs)?
A comparable commercial site with 65 front feet sold for a cash-equivalent price of $585,000. Per standard appraisal guidance, sale price per front foot is a vacant-land unit of comparison when frontage is a primary value determinant. The subject site has 72 front feet and is otherwise similar. What indicated land value does the front-foot unit support before other adjustments?
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Previous Question
The subject is a vacant site of 17,500 square feet. Sales of comparable vacant land indicate a price of $48 per square foot. What is the indicated land value?
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The subject is a vacant site near a fish farm or aquaculture facility. A comparable vacant site without this proximity sold for $850,000. Paired land sales indicate a discount of $160,000 for the proximity stigma, which makes the subject inferior to the comparable. No other adjustments apply. What is the indicated land value of the subject?