Chapter 4: Land Valuation Flashcards
Vacant land commands value primarily based on which of the following?
1.) Potential use
2.) Current use
3.) Indirect use
4.) Direct use
1.) Potential use
Which of the following statements regarding the 4-3-2-1 rule is FALSE?
1.) This rule is based on the fact that land value has decreasing returns to scale.
2.) Actual depth adjustments should be supported by available market data.
3.) For a property with a depth of 60 meters, the last 30 meters of depth will only account for approximately 30% of the value of the land.
4.) For a property with 40 meters of frontage, the first 10 front-meters will account for approximately 40% of the value of the land.
4.) For a property with 40 meters of frontage, the first 10 front-meters will account for approximately 40% of the value of the land.
Suppose an investor has determined that a proposed new use for a plot of land will return a potential gross income of $220,000 per year with an annual operating cost of $135,000. If the land’s market value is $540,000, what is the market capitalization rate?
1.) 8.3%
2.) 4.1%
3.) 15.7%
4.) 13.3%
3.) 15.7%
Referring to Example 4.4, which of the following regarding First Nations Reserve Land is TRUE?
1.) Since Reserve lands do not sell in the open market, the sale of Reserve lands is extremely rare.
2.) In situations with no pre-paid rent comparables, an alternative is establish an annual market rental value and then calculate the present value of the future annual rental stream for 99 years at an appropriate discount rate.
3.) The preferred approach to establish prepaid rental value of the RV lots is direct comparison of pre-paid rents from other RV lot sales, on reserve or non-Reserve lands.
4.) All of the above
4.) All of the above
Which of the following is NOT a comparison-based analysis technique?
1.) Subdivision development analysis method
2.) Extraction technique
3.) Allocation technique
4.) Comparative unit
1.) Subdivision development analysis method
A developer plans to purchase a vacant lot and build a fourplex, which represents the highest and best use of the land. The developer wants to determine the maximum bid price based on land residual technique. Assume that the anticipated NOI from the projected units is $100,000 and one-half of this will be attributed to the building. The market derived capitalization rate for the land is 5% respectively. Assume also that the finished project is free and clear of debt at the time of completion. Applying the direct capitalization method, what is the residual land value?
1.) $1,500,000
2.) $1,000,000
3.) $2,000,000
4.) $1,855,000
2.) $1,000,000
You are appraising a property in Port Moody, BC. This parcel has 115 feet of street frontage, but has 20% more depth than typical properties in this area. It also has access difficulties. Your analysis of recent sales has found a typical lot has a value per front foot of $2,670. You will adjust this -15% for the subject’s restricted access and apply a _____ adjustment for the subject’s extra depth. You conclude that the market value for the subject land is $2,500 per front foot. If the adjustments are multiplicative, what was the adjustment for depth?
1.) -10.8%
2.) +10.2%
3.) -7.3%
4.) There would be no adjustment for increased depth.
2.) +10.2%
-calculate access adjustment: $2670-15%
-calculate depth adjustment: $2500/access adjustment
Which of the following regarding the extraction method of land valuation is FALSE?
1.) This technique cannot be applied when the building’s contribution to total property value is small.
2.) A limitation of the extraction technique is that the appraiser must be able to determine the contributory value of the improvements, estimated at their depreciated cost.
3.) A limitation of the extraction method is that the appraiser must be able to determine the contributory value of the improvements.
4.) The extraction method is useful is highly developed areas where there are few, if any, vacant land sales.
1.) FALSE - This technique cannot be applied when the building’s contribution to total property value is small.
An appraiser is asked to value a parcel of land where the owner intends to build his home. There have been no recent lot sales, so comparative data is not available. however, properties in the neighbourhood with newly built houses are selling for between $680,000 to $730,000. Market research in another nearby neighbourhood finds that developers can purchase similar building lots for $200,000, construct a house, and sell the property for $600,000, earning a profit of $50,000.
What is the land-to-property value ratio in this nearby neighbourhood?
1.) 0:5:1
2.) 0:33:1
3.) 0:6:1
4.) 0:2:1
2.) 0 : 0.33 : 1
-value of land / total property value
An appraiser is asked to value a parcel of land where the owner intends to build his home. There have been no recent lot sales, so comparative data is not available. however, properties in the neighbourhood with newly built houses are selling for between $680,000 to $730,000. Market research in another nearby neighbourhood finds that developers can purchase similar building lots for $200,000, construct a house, and sell the property for $600,000, earning a profit of $50,000.
What range of land value is indicated for the parcel being appraised (rounded to the nearest thousand)?
1.) $340,000 to $365,000
2.) $323,000 to $347,000
3.) $213,000 to $229,000
4.) $224,000 to $241,000
4.) $224,000-$241,000
- land ratio x total property value
For a ground lease, the leased fee estate is BEST described by which of the following statements?
1.) The ownership interest equal to the present value of the rent to be paid from the lessee to the lessor.
2.) The ownership interest of the lessor, which includes the right to receive the rent specified in the lease as well as the value of the reversion of property control once the lease expires.
3.) The ownership interest of the lessee, which is equal to the difference between the market rate of rent and the contract rate of rent, for the remainder of the lease term.
4.) None of the above statements describe a leased fee estate.
2.) The ownership interest of the lessor, which includes the right to receive the rent specified in the lease as well as the value of the reversion of property control once the lease expires.
Which theory states that returns attributable to land are what remain after returns to labour, management, and capital are satisfied?
1.) Change and anticipation
2.) Highest and best use
3.) Supply and demand
4.) Surplus productivity
4.) Surplus productivity
What is the market rent for the subject property based on the ground rent capitalization technique assuming a comparable leased lot in the area recently sold for $1,250,000, it is $21,400 square feet, and capitalization rates for the area are found to be 9.5%?
1.) $7.89 per square foot
2.) $13.48 per square foot
3.) $5.55 per square foot
4.) $10.70 per square foot
3.) $5.55 per square foot
- (1,250,000 * 0.095)/21,400
You have just spent an informative 20 minutes over coffee with a local builder who has been building houses in the area for the past 30 years. He does not develop the land, just buys the serviced lots and builds on them. He knows his stuff and is quite knowledgeable concerning residential values. He feels that the optimal construction on a standard single-family lot in the current market is a 2,200 sq. ft. dwelling. The cost of construction including a double attached garage, landscaping, and entrepreneurial incentive, is about $187,000 with a likely selling price of $310,000. Using the allocation method, you calculate a land ratio of 40%.
Bearing in mind that this information from the builder, although grounded in 30 years of experience, is still only one person’s opinion, which of the following is the MOST reliable source to cross-check the allocation ratio estimate?
1.) Consulting other developers
2.) Referencing published data sources
3.) Mass appraisal by assessors
4.) Observed patters over time in the area
4.) Observed patterns over time in the area
Megan is considering buying a five-acre parcel of land that she believes can be subdivided into 1/2 acre lots. She estimates a value of $60,000 per lot, once serviced and subdivided. She estimates servicing costs to be $100,000, overhead to be 20%, and a reasonable allowance for holding costs and profit is 40% of net sales proceeds. Based on the developer’s back-of-the-envelope analysis, what is the indicated value of this undeveloped land? (Ignore any issues with request to timing of cash flows or discounting)
1.) $600,000
2.) $380,000
3.) $288,000
4.) $228,000
4.) 228,000
- gross revenue - 10 x $60,000
-net income = gross income minus servicing costs and overhead
-land value = net income minus profit and holding costs
10x60,000
=600,000
600,000-100,000-(20% of 600,000)
=380,000
380,000-(40% of 380,000)
= $228,000
