Question 1

The land residual method is based on the principle of surplus productivity.

Accepted Answer

The land residual method determines the value of a property by calculating the value of the land based on its potential income. This income is calculated by subtracting all operating expenses and a fair rate of return for any improvements or buildings on the property from the total income the property is capable of generating. The resulting value is then added to any value that the improvements or buildings may have to determine the overall value of the property. Essentially, the land residual method is based on the principle of surplus productivity, where the value of a property is determined by its ability to generate income above and beyond its expenses.

Question 2

Whether the land is actually vacant or improved, it should be appraised as if it were vacant.

Accepted Answer

When appraising a property, it is customary to appraise it as if it were vacant, regardless of whether the land is actually vacant or improved. This is because the highest and best use of a property may differ from its current use, and appraising it as if it were vacant allows for an evaluation of its potential uses and highest value.

Question 3

Land or site value estimates are important only in the appraisal of vacant properties.

Accepted Answer

Land or site value estimates can also be important in the appraisal of developed properties, as the value of the land and its potential for future development can impact the overall value of the property.

Question 4

Land value estimates by the abstraction method routinely are just as accurate as those arrived at by the market method.

Accepted Answer

The abstraction method involves estimating the land value based on the value of the improvements made to the property, while the market method involves comparing the property to similar properties in the area that have recently sold. The market method is generally considered more accurate because it takes into account the supply and demand of the real estate market, whereas the abstraction method is more subjective and can be influenced by factors such as depreciation and obsolescence.

Question 5

The greatest weight should generally be given to the comparable sales that require the least adjustment.

Accepted Answer

This is true because comparable sales that require less adjustment are more similar to the subject property and therefore provide a more accurate estimate of value. In contrast, comparable sales that require significant adjustments may not be as reliable and may introduce more uncertainty into the analysis.

Question 6

A subordination clause in a land sales agreement often involves seller financing.

Accepted Answer

A subordination clause in a land sales agreement can involve seller financing, as it means that the seller's loan will take priority over any other liens or mortgages on the property being sold. This can be beneficial for buyers who may not be able to secure traditional financing and for sellers who want to ensure their investment is protected.

Question 7

An adjacent site purchased by the local grocer for business expansion would be a good market comparable in your appraisal of a parcel one block away with the same size, shape, and zoning.

Accepted Answer

The answer of An adjacent site purchased by the local...

Question 8

An opinion of highest and best use is required for all land appraisals made for the purpose of estimating market value.

Accepted Answer

An opinion of highest and best use is necessary to estimate the most probable price that a property will fetch in the market. The highest and best use refers to the reasonably probable and legal use of a property that is physically possible, appropriately justified, financially feasible, and results in the highest value. Therefore, it is an important consideration in all land appraisals for estimating market value.

Question 9

Prior sales of the subject property should be noted, but are always irrelevant to the value of land.

Accepted Answer

The prior sales of the subject property can provide useful information in determining the value of the land, such as identifying trends in the local real estate market and determining the property's appreciation or depreciation rate. However, it is not the only factor that determines the value of the land. Other factors such as location, zoning, and surrounding amenities must also be taken into account.

Question 10

The price per dwelling unit may be more important in multiple-residential land appraisals than the price per square foot.

Accepted Answer

In multiple-residential land appraisals, the price per dwelling unit may be more relevant and useful than the price per square foot, as it takes into account the number of units that can be built on the land and the potential income generated, rather than just the physical size of the land.

Deck 10: Valuing the Site