Definition of "Allocation method"

Mark Allgood real estate agent

Written by

Mark Allgoodelite badge icon

Century 21 JW Morton Real Estate

The allocation method estimates the value of the property’s land by gathering information from comparable properties. The allocation method of estimating site value is ideal, however, when comparables are not available. We’ll get to how comparables are actually used in the allocation method below, but it isn’t the same as through the abstraction method. We get to know the percentage value of the land to the property’s total value through the allocation method. While this method is used for land and site appraisals and valuations, it is not the most commonly used method. 

What is the Allocation Method?

The allocation method is one of the appraisal methods used by assessors to estimate the land value of a property that has been improved. In a residential area, the allocation method is not used as it is considered rather complicated compared to the other options of valuation. The sites, lands, or properties it is applied to don’t have sufficient comparable sales to determine the site’s value through the sales comparison method.

It is also important to note that the allocation method is more relevant when the property’s improvements are new. With older improvements, the ratio of land to property can increase making the allocation method inaccurate. Depreciation of property does affect the allocation method and it isn’t an ideal method for older homes.

How to use the Allocation Method?

To estimate the value of a property’s land or site, the assessor takes into account the values of comparable properties (with homes built on the lot) and comparable lots (empty lots). The assessor calculates the ratio from the two values and then applies the ratio on the appraised property.

If comparable lots in the area are sold for 20% of comparable properties value and comparable properties are sold for $200,000, then the 20% ratio is applied to the property that’s being appraised.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Real Estate Terms

(1) Individual or business that is engaged to do some sort of construction work for another for a fee. There are basically three types of contracting: A general contractor enters into a ...

In an electrical system, the connection box where all the circuit systems are installed with a series of electrical breakers. The major distribution or collection duct in an ...

In an adjustable rate mortgage (ARM), the maximum rate that can be charged during the mortgage period. For example, John obtained an $80,000 6% ARM having a lifetime rate cap of 10.5%. ...

tenancy having no written lease or contract. A periodic tenancy can be on a month-to-month or week-t-week basis. ...

When a real estate owner wants to know what their property tax liability is, they calculate the assessment ratio for their property. An assessment ration is a relationship between a real ...

Percentage of rental property that is unoccupied. For example, a vacancy rate of 25% means that 25% of the rental unites are nor being used. Idle space can cause a significant cash drain ...

Property taken over by the government because the owner has failed to pay taxes on it. The property may revert back to the owner when the taxes are paid. If not, the government may sell the ...

Clause inserted into a commercial lease by a mortgagee stating the lessee's current lease will not be terminated if there is a foreclosure action against the landlord for the failure to ...

A void property is a real estate property that is immediately available for new owners or renters as it is vacated. Void real estate properties can be occupied at a short notice as no ...

Popular Real Estate Questions