A developer in Queensland is considering purchasing a site for a residential subdivision. A valuer using the residual (hypothetical development) method would calculate the site's value by:
Correct Answer
A) Taking the completed project's gross realisation and deducting costs, profit and holding costs
The residual (hypothetical development) method works backwards from the expected gross realisation of the completed project, deducting all development costs (construction, professional fees, finance, marketing), the developer's profit margin, and holding costs to arrive at the residual land value.
Why This Is the Correct Answer
The residual method starts with the gross realisation of the finished development and deducts construction and professional costs, finance and holding costs and the developer's profit. What remains is the most the land is worth to the developer.
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