Which unit of comparison is most commonly applied to a downtown commercial site?
Correct Answer
A) Price per square foot of land area
Why this is correct: Price per square foot of land area is the most common unit of comparison for a downtown commercial site. Value in such markets is closely tied to the buildable area, which is a function of the land's square footage and zoning allowances (like floor-area ratio). This unit provides a precise measure for comparing small, valuable urban parcels. Why the other choices are wrong: "Price per acre of the total parcel" is too coarse a measure for typically small downtown lots. "Price per dwelling unit permitted" is used for residential land, not commercial. "Price per front foot of the lot" is historically used for retail properties where frontage is critical, but for general downtown commercial use, square footage is more comprehensive. Exam tip: The unit of comparison should reflect what drives value in that specific market.
Why This Is the Correct Answer
Why this is correct: Price per square foot of land area is the most common unit of comparison for a downtown commercial site. Value in such markets is closely tied to the buildable area, which is a function of the land's square footage and zoning allowances (like floor-area ratio). This unit provides a precise measure for comparing small, valuable urban parcels. Why the other choices are wrong: "Price per acre of the total parcel" is too coarse a measure for typically small downtown lots. "Price per dwelling unit permitted" is used for residential land, not commercial. "Price per front foot of the lot" is historically used for retail properties where frontage is critical, but for general downtown commercial use, square footage is more comprehensive. Exam tip: The unit of comparison should reflect what drives value in that specific market.
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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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