What is Allocation?

Allocation is described in the text books as an appraisal method that is based on balance and contribution.  Land value to total property value ratios derived from lot sales and finished residential home sales for example can provide an appraiser with an approximation of site value knowing a properties sales price, or the value of a vacant when the total sales price is known.

While not used in many appraisal reports allocation can be a valuable tool when sales information is in short supply.  Since builders in Las Vegas often sell none of their subdivision lots, allocation may be the only way for an appraiser to form an option of lot value within those subdivisions.  Usually the sales of lots in proximate subdivisions is used as the primary appraisal method, allocation does keep you within a credible range.

As is typical with multipliers and ratios, site value opinions concluded using allocation are not exact, and a range of values is concluded, but the opinions formed are usually much better than those that would have been formed without them.

Allocation is also useful when you are evaluating "ranchette" properties.  In Las Vegas this property type generally includes 2.5 gross acre sites, often horse properties, in protected residential areas.  There is a typical build-out ratio on these properties and like real estate the properties that are over improved or under improved require special attention.

If the data is available taking some time to study your market and establish a vacant to improved ratio range using allocation is worth your time as an appraiser.  Yes, it's probably in the 20% to 30% range, but your area may be
different. 

Like everything else about the real property market in your area, until you actually take the time to discover the values, ratios and relationships or they will remain a mystery to you.

For more appraisal information contact Glenn Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada appraiser who can be contacted via email or via his business website Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/.  

Article source: http://www.appraisalarticles.com/General-Appraisal-Articles/4389-What-is-Allocation.html