Land Residual Technique

Technique used to estimate how the value of a parcel of land will affect its ability to support a given commercial improvement leaving sufficient residual net income to maintain adequate profitability. The commercial value of the land must exceed its purchase price in order for there to be sufficient residual income. Capital land valuation is determined by capitalizing the residual net income. Property tax appraisals and condemnation awards normally require the land residual technique. Unimproved land values are determined through this technique and the value of the improvements are added to establish a total improved land value. In computing land residual value, an appraiser values structural improvements at their cost. Costs associated with the building are deducted from net income. The remaining value is residual the land.