Land and Site Valuation
Land and Site Valuation
This domain tests how land and site value is separated from total property value, including sales comparison, extraction, allocation, subdivision analysis, and residual techniques. Expect questions on which method fits vacant land, improved property, and development sites.
Core rules
- Sales comparison is the primary land valuation method. Adjust for location, size, shape, frontage, access, zoning, utilities, topography, and market conditions.
- Extraction subtracts depreciated improvement value from a comparable improved sale to indicate land value.
- Allocation uses a typical land-to-building ratio from a market area; it is a secondary method and should be supported by local data.
- Subdivision development discounts projected lot sales, subtracts development costs and entrepreneurial profit, and accounts for timing and risk.
- Ground rent capitalization values land by dividing market ground rent by a land capitalization rate.
- Land residual is useful for testing highest and best use: deduct income attributable to improvements from net operating income, then capitalize the residual income to land.
- Site improvements such as grading, paving, and utilities add value but must not be double-counted as land.
Worked example
A proposed development has NOI of $110,000. The building value is $800,000 and the building capitalization rate is 9%, so income to improvements = $72,000. Residual income to land = $110,000 − $72,000 = $38,000. With a land capitalization rate of 8%, land value = $38,000 ÷ 0.08 = $475,000. If the residual were negative, the proposed use would not be financially feasible.
Traps
Using allocation when direct land sales exist; subtracting land value instead of improvement value in extraction; ignoring development costs and entrepreneurial profit; capitalizing gross rent instead of net ground rent; and double-counting site improvements.