Where does the ratio used in the allocation method properly come from?
Correct Answer
D) Relevant market analysis with credible land and total-value evidence
Support the land-to-total relationship with relevant verified market data and credible component evidence. Sale prices alone do not disclose the land share. A national default, client preference or unverified tax allocation does not establish an applicable market ratio.
Why This Is the Correct Answer
Option D is correct because the allocation ratio should be derived from relevant market analysis using credible evidence of land value and total property value. Analyzing site-to-total ratios in comparable areas where vacant and improved properties have sold provides that support. Sale prices alone do not reveal the land share, so component evidence is needed.
Why the Other Options Are Wrong
Option A: A nationwide percentage without comparability analysis
Option A proposes a nationwide percentage used without comparability analysis. Land-to-total ratios vary by market, property type and location, so a national default does not establish the ratio for the subject's market.
Option B: The share of value the client requests for the land
Option B uses the share of value the client requests for the land. An appraiser's conclusions must rest on market evidence, not on what the client prefers, so a client-requested share is not a valid basis.
Option C: An assessor split accepted without checking its valuation basis
Option C accepts an assessor split without checking its valuation basis. Tax allocations may use different methods, dates or purposes, so an unverified assessor split does not establish a market-supported ratio.
Ratios come from the market
An allocation ratio is only as good as the market evidence behind it, not the source that hands it to you.
How to use: Use this when choosing between sources for an allocation ratio on the exam.
Exam Tip
Look for the answer that ties the ratio to verified market data; options based on convenience, client preference or unverified tax records are typically wrong.
Common Mistakes to Avoid
- -Using a rule-of-thumb percentage without market support
- -Adopting the assessor's land and building split as market evidence
- -Letting the client dictate the land share
Concept Deep Dive
Analysis
This question tests where a land-to-total-value ratio for the allocation method should come from. The ratio must be supported by relevant market analysis, such as ratios of site value to total value in comparable neighborhoods with vacant and improved sales. Defaults, client wishes and unverified tax splits do not supply that support.
Background Knowledge
The allocation method estimates land value by applying a typical land-to-total ratio to the value of an improved property. It is generally used when vacant land sales are scarce, and its reliability depends on how well the ratio is supported. Ratios are often developed from comparable neighborhoods where both vacant and improved sales exist.
Real-World Application
An appraiser in a fully built-out subdivision cannot find vacant lot sales. She studies a similar nearby subdivision where lots and homes both sold recently, finds that land made up a consistent share of total value there, and uses that supported ratio while noting its limitations.
More Land/Site Questions
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Which fact, if supported by competitive-market evidence, most directly supports a unit-price premium for an otherwise comparable site?
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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?
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Previous Question
An appraiser extracts land value from six improved sales and gets results ranging from $70,000 to $145,000. What does this indicate?
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A property sold for $315,000. The improvements had a replacement cost new of $240,000 and accrued depreciation of $90,000. What land value does extraction indicate?