What does the land residual technique assume about the improvements on the site?
Correct Answer
A) That they are new and represent highest and best use
Why this is correct: The land residual technique is a development method that estimates land value by deducting the cost of a new improvement (including profit) from the projected value of the completed property. It assumes the improvement is new and represents the highest and best use of the site. Why the other choices are wrong: The technique does not assume improvements contribute nothing to income; they are the source of the income. It does not assume demolition within a few years. It does not assume value equals original cost; it uses current cost and value. Exam tip: Residual techniques are forward-looking and assume optimal development. They are sensitive to the accuracy of income, cost, and rate estimates.
Why This Is the Correct Answer
Why this is correct: The land residual technique is a development method that estimates land value by deducting the cost of a new improvement (including profit) from the projected value of the completed property. It assumes the improvement is new and represents the highest and best use of the site. Why the other choices are wrong: The technique does not assume improvements contribute nothing to income; they are the source of the income. It does not assume demolition within a few years. It does not assume value equals original cost; it uses current cost and value. Exam tip: Residual techniques are forward-looking and assume optimal development. They are sensitive to the accuracy of income, cost, and rate estimates.
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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