Which situation would indicate a site is over-improved?
Correct Answer
A) The improvement cost more than the market returns
Why this is correct: An over-improvement (superadequacy) occurs when the cost of an improvement exceeds the value it adds in the market. It is a form of functional obsolescence where the property is too good for its location or market, and the extra investment is not recouped upon sale. Why the other choices are wrong: 'The site has more area than the building needs' describes surplus land, not over-improvement. 'The building is older than others in the area' describes physical deterioration or possibly external obsolescence. 'The site is smaller than the neighborhood norm' describes an under-sized site. Exam tip: Over-improvement = improvement too costly/massive for the site or neighborhood. The cost is not supported by market value.
Why This Is the Correct Answer
Why this is correct: An over-improvement (superadequacy) occurs when the cost of an improvement exceeds the value it adds in the market. It is a form of functional obsolescence where the property is too good for its location or market, and the extra investment is not recouped upon sale. Why the other choices are wrong: 'The site has more area than the building needs' describes surplus land, not over-improvement. 'The building is older than others in the area' describes physical deterioration or possibly external obsolescence. 'The site is smaller than the neighborhood norm' describes an under-sized site. Exam tip: Over-improvement = improvement too costly/massive for the site or neighborhood. The cost is not supported by market value.
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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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