Allocation Method
Definition of "Allocation method"
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.
Popular Real Estate Terms
The return by owners of a property investment usually through a depreciation allowance. a clause in a contract permitting the prior owner of real estate to recover under certain ...
One's given name at birth including a first name, a possible middle name, and a surname. The legal name must be used to legally sign documents, deeds, or contracts. ...
Linkage in real estate means the proximity of a particular piece of land to its originally intended function. In addition, linkage can refer to the time and distance between a ...
The phrase used for the period in which the escrow agent communicates to both the buyer and the seller as to what documents or moneys have to be deposited with the escrow agent to satisfy ...
Stigmatized property is a property that home buyers might back off on closing a deal due to factors that are not related to the property’s price, structural/aesthetic conditions and ...
America remains a top tourist attraction worldwide, with over 79 million foreign visitors a year. Many are seduced by the American Dream and sooner or later they wonder how they could ...
Changing property ownership. An example is the sale of a home to another. ...
Provision in the insurance policy lapses due to premium nonpayment, all unpaid premiums must be paid, and any additional requirements must be satisfied before reinstatement can take place. ...
Estimated market price property could bring using currently accepted appraisal methods. This might not be the same as the market price at any one given time when the seller is compelled to ...
Have a question or comment?
We're here to help.