What does the Principal of Surplus Productivity measure?

The Principal of Surplus Productivity is a concept in property valuation that measures the income generated by a piece of land after accounting for the costs associated with the land’s inherent productivity, particularly when considering its highest and best use. This concept focuses on the net income earned from land as it reflects the profitability and value that the land can generate when optimally utilized.

In the context of real property valuation, surplus productivity indicates the amount of income that remains after deducting expenses related to the property. This net income is critical for assessing the land's value and investment potential, which is foundational in determining how valuable that land is in the overall market. It essentially illustrates the financial benefits realized from owning and utilizing the property effectively, distinguishing it from the overall gross income or other financial figures that do not offer insights into the land’s efficiency and productive capacity.

This understanding makes it clear why the measurement centers on net income earned by the land, as opposed to other options which might focus on gross income, specific property improvements, or tax considerations that do not directly represent the land's productivity.