How will Stack Investors use the relative sales value method to allocate the purchase price of a rental property it purchased?

How will Stack Investors use the relative sales value method to allocate the purchase price of a rental property it purchased?

Stack Investors is a real estate company, specializing in student housing rentals. Black Squirrel Rentals recently purchased a house at 121 Crain Avenue in Kent for $55,000. Rooms in the house will be rented to students. The real estate purchase included the house and the land (.0611 acres) upon which it is located.

Assume that the house has an appraised value of $77,350, while the land has an appraised value of $13,650.

View a quick tutorial video about the relative-sales-value method for asset group purchases at this link and then answer the following questions.

Questions

1. What is the total appraised value of the house plus the land?
2. Why is there a difference between the purchase price and the total appraised value?
3. What is the relative sales method? Why is it important to allocate the purchase price to the house and to the land individually?
4. Of the total appraised value, what percentage is the house? What percentage is the land?

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