For a vacant site, several verified recent sales have the same competitive market and highest and best use; their relevant differences can be supported. Which method provides the most direct land-value indication from those data?
Correct Answer
A) The sales comparison method
Reliable sales comparison is a direct land-value indication when adequate competitive vacant sales can be verified and relevant differences supported. Mere existence of sales does not make them comparable, and reconciliation still considers data reliability.
Why This Is the Correct Answer
Option A is correct because sales comparison relies directly on prices paid for competing vacant sites with the same highest and best use. When such sales are verified and differences can be supported, it provides the most direct land-value indication, and other methods are better used as additional support.
Why the Other Options Are Wrong
Option B: The land residual technique
Option B, the land residual technique, derives land value indirectly by allocating income and capitalizing the residual. It depends on several estimated inputs and is better used as support when good vacant sales exist.
Option C: The ground rent method
Option C, the ground rent method, capitalizes land rent. It requires ground lease data and is an indirect technique, not the most direct indication when comparable vacant sales are available.
Option D: The land allocation method
Option D, the land allocation method, applies a land-to-total ratio to improved property value. It is an indirect technique typically used when vacant sales are scarce.
Sales first, others support
When good vacant sales exist, sales comparison leads and the indirect methods play a supporting role.
How to use: Use this when asked which land method is most direct given good sales data.
Exam Tip
If the question stresses verified, comparable vacant sales, the answer is usually sales comparison.
Common Mistakes to Avoid
- -Preferring an indirect method when good sales are available
- -Assuming any available sale is comparable
- -Confusing allocation with sales comparison
Concept Deep Dive
Analysis
This question tests which land valuation method gives the most direct indication when good vacant sales exist. With verified, competitive sales and supportable differences, sales comparison reflects the market directly. Other methods are indirect and serve better as support.
Background Knowledge
Land valuation methods include sales comparison, allocation, extraction, subdivision development, land residual and ground rent capitalization. Sales comparison is generally preferred when adequate comparable vacant sales are available.
Real-World Application
An appraiser valuing a vacant commercial pad finds four verified recent sales of similar pads along the same arterial. The appraiser relies on sales comparison and uses an income-based check only as support.
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Previous Question
An appraiser extracted site value from the $500,000 cash sale of a heavily improved house. A review finds that the improvements contribute $420,000 and that the appraiser's estimate of that contribution was 5% too high. By what percentage of the correct site value was the site understated?
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In a neighborhood where land typically represents 22 percent of total property value, a house sells for $425,000. What does the allocation method indicate for the site?