Introduction to Calculating Residual Land Value

The real estate professional will use several methods to determine the value of a project.  For example, appraisers use three methods of analysis – the cost approach, income approach, and sales comparisons.  For investors and developers, the methods may include calculations on the back of a napkin, formal calculations in a spreadsheet, or a complete analysis using sophisticated software.  Each method can be used conveniently, effectively, efficiently, and reliably at specific points in the analysis of a project.  The results of the analysis may vary from an initial analysis to the more complex analysis based on the quality of the information used in the analysis.

This reading provides the background information to understand the mathematics of residual land value using the direct capitalization approach. Residual land value calculates the value of the property based on the productive value of the land.  In most cases, the residual land value represents value of the land based on the highest and best use.

Residual Land Value Analysis 06222016