ALC common mistakes
ALC · Understand the traps and how to avoid them.
Valuing a farm or ranch as a single lump-sum tract without allocating value to the dwelling, outbuildings, and non-productive acreage.
Candidates apply a single per-acre land value to the entire parcel, ignoring that the residence and improvements have separate contributory value and that excess acreage may not support the same per-acre rate.
What to do instead
Break the property into components (land by use class, improvements, and any excess land) and value each; then reconcile to a single opinion and state the allocation in the report.
Using the highest and best use conclusion without testing the four criteria (legal permissibility, physical possibility, financial feasibility, maximum productivity) for each alternative.
Candidates default to the current use or the most intensive use without demonstrating that the alternative passes all four tests, especially financial feasibility.
What to do instead
For each candidate use, write one sentence on each criterion and show the feasibility calculation (e.g., residual land value or discounted cash flow) that supports the chosen use.
Treating a timberland tract as bare land value and ignoring the value of the standing timber, the timber cruise, and the cost of harvest.
Candidates value only the soil expectation or bare land, missing that the merchantable timber is a separate asset with its own volume, species mix, and access constraints.
What to do instead
Obtain or assume a timber cruise (species, volume, grade), apply current stumpage prices, deduct harvest and haul costs, and add the discounted bare land value to reach total value.
In a subdivision feasibility analysis, subtracting total development costs from gross sale proceeds without adjusting for the time value of money or the absorption period.
Candidates use a static residual land value calculation and ignore that lots sell over multiple years, so carrying costs, marketing, and profit are understated.
What to do instead
Build a cash-flow model with an absorption schedule, discount all revenues and costs to present value at an appropriate rate, and solve for the residual land value that yields the required developer profit.
Wholesaling a lot or land parcel without verifying that the purchase contract assigns or that the seller permits assignment, and without disclosing the assignment fee.
Candidates assume any contract can be assigned and fail to check the assignment clause, state law, or disclosure requirements, creating legal and ethical exposure.
What to do instead
Review the contract for an assignability clause, confirm state disclosure rules for assignment fees, and use a written assignment agreement that names the end buyer and the fee.
Selecting a site for a development without checking zoning, comprehensive plan designation, utility capacity, and access easements before making an offer.
Candidates focus on price and physical attributes and skip the entitlement and infrastructure due diligence that determines whether the intended use is legally and physically possible.
What to do instead
Complete a site selection checklist covering zoning and land use, utility availability and capacity, access and easements, environmental constraints, and entitlement timeline before submitting an offer.
Assembling multiple parcels without accounting for the plottage increment, the holdout cost, and the time required to acquire the last parcel.
Candidates sum the individual parcel values and ignore that assemblage value is greater than the sum of parts only if the parcels can be combined, and they underestimate the cost and delay of the final acquisition.
What to do instead
Estimate the assembled value, deduct acquisition costs, holding costs, and a holdout premium for the last parcel, and compare the result to the sum of individual prices to justify the assemblage.
Preparing a broker price opinion or listing presentation that presents a single point value without a range, assumptions, or limiting conditions.
Candidates treat a BPO as an appraisal and state a precise value, which overstates reliability and may violate appraisal independence rules if the assignment requires a licensed appraiser.
What to do instead
Present a value range, state the purpose and intended use, list extraordinary assumptions and limiting conditions, and include a statement that the opinion is not an appraisal.
In an auction, failing to set a reserve price and bid increments that reflect the property's appraised value and the seller's minimum acceptable price.
Candidates focus on marketing and registration and leave the reserve and increments to the auctioneer without linking them to a valuation, risking a no-sale or an undersale.
What to do instead
Before the auction, document the appraised value or BPO, set a reserve at or above the seller's minimum, define bid increments, and confirm the auctioneer's authority and fee structure in writing.
Managing a farm or ranch lease without a written lease that specifies rent basis, term, maintenance responsibilities, and termination notice.
Candidates rely on verbal or short-form leases and omit key terms, leading to disputes over improvements, crop share, and notice periods.
What to do instead
Use a written lease that states the rent basis (cash or share), term and renewal, maintenance and improvement responsibilities, termination notice, and dispute resolution, and have it reviewed by counsel.