Why is site value estimated as though the site were vacant and available for its highest and best use?
Correct Answer
D) Because the cost approach requires that premise
Why this is correct: Because the cost approach requires that premise. The cost approach adds land value to depreciated improvement cost. Valuing the site as if vacant and available for its highest and best use prevents double-counting the building's influence and tests if the current use is optimal. Why the other choices are wrong: Lenders require vacant-land comparables is not a universal principle; site value can be estimated by various methods. Zoning is measured only for vacant parcels is false; zoning applies to improved parcels as well. Existing improvements never affect land value is incorrect; improvements can influence land value, but the cost approach isolates the land's contributory value. Exam tip: The vacant and available premise is foundational to the cost approach's logic.
Why This Is the Correct Answer
Why this is correct: Because the cost approach requires that premise. The cost approach adds land value to depreciated improvement cost. Valuing the site as if vacant and available for its highest and best use prevents double-counting the building's influence and tests if the current use is optimal. Why the other choices are wrong: Lenders require vacant-land comparables is not a universal principle; site value can be estimated by various methods. Zoning is measured only for vacant parcels is false; zoning applies to improved parcels as well. Existing improvements never affect land value is incorrect; improvements can influence land value, but the cost approach isolates the land's contributory value. Exam tip: The vacant and available premise is foundational to the cost approach's logic.
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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