The Allocation Method of appraising land is a technique of appraising land in which the appraiser collects information about the site values of comparable sales and establishes a ratio between the site value and the total value. The ratio is then applied to the subject property.
The allocation method land appraisal assumes that similar houses in similar locations have a similar land/value ratios. The procedure is:
Locate a comparable neighborhood with house sales and vacant lot sales
|•||Determine the ratio of the land value to the total property value|
|•||Apply the ratio to the subject property to determine the land value of the subject|
The allocation method should only be used when there are insufficient comparable sales to estimate the site value by the sales comparison approach to value. Allocation is usually more reliable when the improvements are relatively new. As the improvements age, the land/property ratio increases. Remodelled older improvements may distort ratios when compared to non-remodelled older properties.
Example: Lot sales in the subject's market area about 20% of the total value. The subject sold for $120,000. Using the allocation method, the value of the subject's site is about $24,000.