Lesson 15 Exercises – Land Valuation: Direct Land Capitalization (The Income Approach to Value)

Appraisal Training: Self-Paced Online Learning Session

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  1. You are asked to appraise an unimproved 125' x 125' vacant corner lot. The zoning regulations allow the development a gasoline and service station, and you conclude that this is the highest and best use of the property. Current ground rents for service station sites are 25 cents per square foot of ground area per month, with the lessee to pay all expenses except the property taxes. Property taxes are on one percent of the taxable value; and a five percent yield rate is appropriate for this property.

    What is the value of the lot for property tax purposes?

Direct Land Capitalization

Gross Income (25¢ / SF / mo × 15,625 SF × 12 mo / yr) / Capitalization Rate (5% Yo + 1% ETR)
=
$46,875 / 6% RL
= $781,250