What distinguishes the building residual technique from the land residual technique?
Correct Answer
B) The building technique starts from a known land value
Why this is correct: In the building residual technique, the land value is known (e.g., from comparable land sales). The building's income contribution is then derived as the residual. Why the other choices are wrong: The technique is not limited to new construction. Both techniques require a capitalization rate. The technique applies separate rates to land and building income streams. Exam tip: 'Building residual' starts with known land value; 'land residual' starts with known building value.
Why This Is the Correct Answer
Why this is correct: In the building residual technique, the land value is known (e.g., from comparable land sales). The building's income contribution is then derived as the residual. Why the other choices are wrong: The technique is not limited to new construction. Both techniques require a capitalization rate. The technique applies separate rates to land and building income streams. Exam tip: 'Building residual' starts with known land value; 'land residual' starts with known building value.
More Land/Site Questions
Under which condition is the land residual technique most applicable?
Why can the same physical parcel carry different values in two assignments?
In a built-up area where no vacant land has sold for years, which approach to site value is the usual fallback?
How is entrepreneurial profit treated in the subdivision development method?
A land comparable sold 18 months ago in a market rising about 4 percent a year. What adjustment direction applies?
Why does a developer's required profit rise for a longer subdivision project?
How does holding cost enter the valuation of land bought for future development?
Excess land is best described as land that has which characteristic?
Plottage value arises in which of the following situations?
Which of the following is an off-site improvement rather than a site improvement?
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