Which characteristic would generally support the highest value per square foot for a site?
Correct Answer
B) A small well-located parcel in high demand
Why this is correct: Value per unit (like square foot) typically exhibits an inverse relationship with size. Smaller, well-located parcels in high demand have the highest utility per unit and face the broadest buyer pool, commanding a premium rate. Why the other choices are wrong: 'A large parcel on the outskirts of the market' generally has a lower unit value due to lower demand and the principle of diminishing utility. 'An irregular parcel with limited road frontage' typically suffers from functional obsolescence, reducing its unit value. 'A parcel encumbered by a drainage easement' has a physical or legal constraint that diminishes its value. Exam tip: Remember the principle of diminishing marginal utility: each additional square foot of land typically adds less value than the previous one.
Why This Is the Correct Answer
Why this is correct: Value per unit (like square foot) typically exhibits an inverse relationship with size. Smaller, well-located parcels in high demand have the highest utility per unit and face the broadest buyer pool, commanding a premium rate. Why the other choices are wrong: 'A large parcel on the outskirts of the market' generally has a lower unit value due to lower demand and the principle of diminishing utility. 'An irregular parcel with limited road frontage' typically suffers from functional obsolescence, reducing its unit value. 'A parcel encumbered by a drainage easement' has a physical or legal constraint that diminishes its value. Exam tip: Remember the principle of diminishing marginal utility: each additional square foot of land typically adds less value than the previous one.
More land-or-site-valuation Questions
Under which condition is the land residual technique most applicable?
What is the appraiser's obligation when a site's legal description does not match its apparent physical boundaries?
Why can the same physical parcel carry different values in two assignments?
A site differs from land in that a site is best described as which of the following?
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?
In a land residual analysis for a proposed office development, the appraiser estimates total annual net operating income (NOI) will be $1,250,000. The improvement value, derived via the cost approach, is $15,000,000. Market evidence indicates a 7.0% overall capitalization rate is appropriate for similar improved properties. What is the indicated land value?
A developer plans a 36-lot residential subdivision on raw land. Each lot is expected to sell for $85,000. Total development costs (excluding land) are $1,420,000, including $220,000 for entrepreneurial incentive. The developer requires a 12% annual yield on invested capital over a 3-year development period. Using the subdivision development method, what is the maximum price the developer should pay for the land if all lots sell at the projected price and timing?
In applying the land residual technique to a proposed subdivision, an appraiser estimates that the time required to fully absorb all lots will be 6 years. The developer requires a 10% annual yield on invested capital. Which discounting approach is most appropriate for converting future net proceeds to present value?
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Previous Question
An appraiser is applying the land residual technique to value undeveloped land suitable for a 48-unit multifamily project. Total projected gross building income is $720,000 annually. Operating expenses (including replacement reserves) are 45% of effective gross income. The improvement's indicated value using the cost approach is $6,000,000, with a 6.5% overall capitalization rate applied to net operating income attributable to the improvements. What is the residual land value?
Next Question
A 6-acre site is improved with a house that a 1-acre lot would serve, and the market permits splitting off the remaining 5 acres. Those acres are: