What does the building residual technique assume about land value?

The building residual technique assumes that land value begins with a predetermined estimate, which serves as the foundation for the analysis. This method focuses on determining the value of a property by assessing the value of the improvements (buildings) it contains. By starting with a set assumption of land value, the technique takes into account how much the improvements contribute to the overall value of the property.

A key aspect of this approach is that the analysis is primarily concerned with understanding how the value of the building can generate revenue and how this, in turn, relates to the value of the land. It does not assume the land value is determined by current market trends or that it is necessarily zero for new constructions; rather, it works from the assumption that the land has a specific value that is then adjusted based on the income produced by the buildings. Thus, this foundational assumption is fundamental to the calculation in this appraisal method.