Question

Henry is appealing the assessment of his property, as he believes the land value is too high, and he has hired an appraiser to provide him with valuation advice. There are no recent sales of vacant parcels in his area, so the appraiser has used the allocation technique. Henry wants to better understand what it is that the appraiser is doing and how this approach works. Which of the following statements would best describe this valuation technique to Henry?

(1) In this technique, a ratio of land value to property value is extracted from comparable sales and applied to the sale price of the subject property to arrive at the land value.

(2) Allocation is a technique that allocates certain attributes of the property into certain monetary categories, giving rise to a value based on many separate characteristics.

(3) The valuation technique calculates the value of the future cash flows by discounting them to the present using the average rate of interest.

(4) This technique places a base value on the property that is directly related to the location; this is then adjusted up or down based on improvements.

Answer 1

ALLOCATION TECHNIQUE IS THE MOST STRAIGHT FORWARD WAY OF VALIDATING ANY WELATH. IN THIS METHOD APPRAISER FINDS THE VALUES OF SIMILAR WEALTH AT THAT TIME POINT. THEN AFTER CONSTRUCTING A RATIO OF LAND VALUE TO TOTAL VALUE , VALUATION OF WEALTH IS DETERMINED. UNDER THIS METHOD BASICALLY COMPARISION IS DONE WITH OTHER SITE VALUES AND THE VALUE IS DETERMINED.

THUS HENRY BEING A LAYMAN BEST UNDERSTAND THE TECHNIQUE BY THE STATEMENT,  "ratio of land value to property value is extracted from comparable sales and applied to the sale price of the subject property to arrive at the land value." AS GIVEN IN THE OPTION. TO BE PRECISE, IN THE TECHNIQUE RATIO OF VALUE OF COMPARABLE SITE TO TOTAL VALUE IS CONSTRUCTED TO VALIDATE THE SITE.
(1) IS THE CORRECT OPTION.

(2) IS WRONG BECAUSE UNDER THE TECHNIQUE COMPARABLE UNITS ARE TAKEN INTO ACCOUNT AND NOT ATTRIBUTE OF SAME SITE.
(3) IS WRONG BECAUSE HERE COMPARISION IS DONE BY RATIOS AND NO DISCOUNTING IS DONE.
(4) IS WRONG BECAUSE FIRST COMPARABLES ARE ANALYSED AND THEN VALUATION IS DETERMINED. BUT THE OPTION SAYS FIRST VALUATION IS DONE THEN IT IS PULLED DOWN WHICH IS WRONG.