When should the land residual technique be employed?

The land residual technique is best employed when improvements on the property are adequate and suitable for the site. This method focuses on determining the value of the land itself by subtracting the value of the improvements from the total value of the property. If the improvements appropriately fit the site, it is much easier to establish a reliable income stream from the property, enabling appraisers to make accurate valuation assessments regarding its land value.

In cases where improvements are not fitting or are in substandard condition, the land residual technique may not yield accurate values, as the quality and suitability of the improvements can distort the income expectations derived from the property. When properties are new and the proper use is uncertain, it can complicate the assessment, as there may not yet be established income figures to guide the valuation. Abundant land sales data might suggest variability in land value, but without suitable improvements, the residual technique may not produce accurate land valuations. Thus, the land residual technique is optimally utilized when the improvements complement and enhance the property, offering a clearer picture of both land and overall value.