Practice exam question

[ItDepends]

The answer key says it's D, $12.00/SF. This is the route they take to arrive there:

1. $840,000/35,000SF=$24.00/SF
2. 42,000*0.5=21,000 SF
$514,500/21,000SF= $24.50/SF
3. $60,000 x 0.75=45,000 SF
$1,089,000/45,000 SF= $24.20/SF
4. $2,035,750/85,000SF=$23.95/SF
Mean = $24.16

72,000 SF x 0.5 = 36,000/SF
36,000 SF x $24.16 = $869,850
869,850 SF/72,000 SF = $12.08

I answered A, $12.25/SF. This was my route:

1. $840,000/35,000 SF = $24.00 (FAR 1.0)
2. $514,500/42,000 SF = $12.25 (FAR 0.5)
3. $1,089,000/60,000 SF = $18.15 (FAR 0.75)
4. $2,035,750/85,000 SF = $23.95 (FAR 1.0)

My logic was that land with a greater legally permissible FAR might sell for more per unit because of the greater development potential, and the resulting $/SF data appears to clearly indicate that is true. Since the subject in the question has a FAR of 0.5, I concluded it was more reasonable to use the comp with a FAR of 0.5 exclusively rather than average them all out.

Where am I going wrong here?

 

[Elliott]

Sale No. 1 has the FAR most similar to the subject (0.5) and is about an acre, and indicates $12.25 (514,000/4200). The answer closest to $12.25 is "A".

 

[gregb]

The answer is A) $12.25 per square foot of site area.
The trick is recognizing that FAR is the relevant comparison characteristic, so first convert each sale to a price per square foot of allowable building area.

Sale	Price	Site SF	FAR	Allowable Building SF	$/Allowable SF
1	$840,000	35,000	1.00	35,000	$24.00
2	$514,500	42,000	.50	21,000	$24.50
3	$1,089,000	60,000	.75	45,000	$24.20
4	$2,035,750	85,000	1.00	85,000	$23.95

They cluster extraordinarily tightly around $24 per square foot of allowable building area.
The subject has a 0.50 FAR, so:
$24.50×0.50=$12.25/sf of site area\$24.50 \times 0.50 = \$12.25/\text{sf of site area}
Alternatively, Sale 2 is the most directly comparable because it has exactly the same 0.50 FAR:
$514,500÷42,000=$12.25/sf of land\$514,500 \div 42,000 = \$12.25/\text{sf of land}
Applied to the 72,000-sf subject:
72,000×$12.25=$882,00072,000 \times \$12.25=\boxed{\$882,000}
So the indicated unit value is A) $12.25/sf, implying a site value of $882,000.
This is a good appraisal-exam question because simply calculating the sales' raw $/land-sf figures produces wildly different numbers until you recognize that the differences are almost entirely explained by development density/FAR.

 

[ItDepends]

The answer is A) $12.25 per square foot of site area.
The trick is recognizing that FAR is the relevant comparison characteristic, so first convert each sale to a price per square foot of allowable building area.

Sale	Price	Site SF	FAR	Allowable Building SF	$/Allowable SF
1	$840,000	35,000	1.00	35,000	$24.00
2	$514,500	42,000	.50	21,000	$24.50
3	$1,089,000	60,000	.75	45,000	$24.20
4	$2,035,750	85,000	1.00	85,000	$23.95

They cluster extraordinarily tightly around $24 per square foot of allowable building area.
The subject has a 0.50 FAR, so:
$24.50×0.50=$12.25/sf of site area\$24.50 \times 0.50 = \$12.25/\text{sf of site area}
Alternatively, Sale 2 is the most directly comparable because it has exactly the same 0.50 FAR:
$514,500÷42,000=$12.25/sf of land\$514,500 \div 42,000 = \$12.25/\text{sf of land}
Applied to the 72,000-sf subject:
72,000×$12.25=$882,00072,000 \times \$12.25=\boxed{\$882,000}
So the indicated unit value is A) $12.25/sf, implying a site value of $882,000.
This is a good appraisal-exam question because simply calculating the sales' raw $/land-sf figures produces wildly different numbers until you recognize that the differences are almost entirely explained by development density/FAR.

I agree, FAR is the key. My confusion is that the answer key says it's D, $12.00/SF.

EDIT: Sorry if I'm wrong, but is this a bot response? "72,000×$12.25=$882,00072,000 \times \$12.25=\boxed{\$882,000}" restates the same equation, just in LaTex code the second time for some reason. Again here "$24.50×0.50=$12.25/sf of site area\$24.50 \times 0.50 = \$12.25/\text{sf of site area}".

 

[ItDepends]

Sale No. 1 has the FAR most similar to the subject (0.5) and is about an acre, and indicates $12.25 (514,000/4200). The answer closest to $12.25 is "A".

So it's likely the answer key is incorrect for this question?