What is the purpose of the land residual technique?

The land residual technique is primarily utilized to assess the value of land by analyzing the relationship between the total property value and the value attributed to improvements made on that land. This technique operates on the premise that the total value of a property can be separated into two components: the value of the land itself and the value of the improvements, such as buildings or other structures.

By deducting the estimated value of the improvements from the overall property value, an appraiser can isolate the land value. This approach is especially useful in scenarios where the property is developed and the impact of the improvements on the overall value needs to be evaluated. The ability to derive land value in this way reflects market conditions and the relative worth of the land in comparison to its enhancements.

In contrast, the other options do not accurately represent the methodology or application of the land residual technique. For instance, simply adding improvement costs does not provide a precise measure of land value, as it fails to account for the interplay between land and improvements. Additionally, the land residual technique is not limited to undeveloped land or specific property types, such as residential properties; it can be applied across various real estate contexts to derive land value calculations effectively.