The building residual technique should be used when which of the following is true?

The building residual technique is particularly effective when realistic net operating income can be developed because it relies on estimating the value of the land and then determining the contribution of the improvements to the overall property value. In this context, having a solid understanding of the net operating income is crucial. This figure allows the appraiser to derive the income potential of the property, which, in turn, informs the calculation of the value attributable to the building.

When using the building residual technique, the appraiser typically applies the income approach to isolate the value of the improvements from the total property value. This requires an accurate assessment of potential revenues generated by the property after accounting for operating expenses, leading to a clearer picture of the building's contribution to the overall value. Therefore, knowing that a realistic net operating income can be developed indicates the methodology can be effectively applied, making it the correct choice in this scenario.

In contrast, uncertainties regarding land value or the availability of land sales data might complicate the application of this technique. Likewise, while new constructions could benefit from this approach, the essence of the building residual technique is deeply tied to understanding realistic income projections, emphasizing why this option is aligned with its proper use.