Land Residual Technique
A land valuation method that estimates land value by capitalizing the net income remaining after deducting the return attributable to the improvements from the property's total net operating income.
The land residual technique is used when income data is available. The appraiser first estimates the income needed to provide a market return on the improvement investment (improvement value times the building capitalization rate). This income is subtracted from the total NOI, and the remaining "residual" income is capitalized at the land capitalization rate to indicate land value. This technique is most commonly used for commercial properties and is one of the methods in the income approach to land valuation.
Related Terms
Land Value
The market value of a parcel of land as if vacant and available for development to its highest and best use.
Capitalization Rate (Cap Rate)
Cap RateThe ratio of a property's net operating income to its market value or sale price, expressed as a percentage.
Net Operating Income (NOI)
NOIThe annual income remaining after deducting all operating expenses from effective gross income, but before deducting debt service (mortgage payments) and income taxes.
Income Approach
A valuation method that estimates a property's value based on the income it generates or is expected to generate.
More in Land & Site Valuation
View allAllocation Method
A land valuation technique that estimates land value by applying the typical ratio of land value to total property value observed in the market.
Extraction Method
A land valuation technique that estimates land value by subtracting the depreciated cost of improvements from the total sale price of an improved property.
Ground Rent Capitalization
A land valuation method that estimates land value by capitalizing the ground rent (the rent paid for the use of land only, without improvements) at an appropriate capitalization rate..
Plottage
The increase in value that results from combining two or more adjacent parcels into a single, larger parcel.