Property Valuation
The land residual technique in appraising is used when:
ABoth land and building values are unknown
BThe building value is known and the land value is being derived✓ Correct
CThe land is being appraised for agricultural use
DOnly the cost approach is applicable
Explanation
The land residual technique starts with the known (or estimated) building value and income attributable to it, then attributes any remaining (residual) income to the land to derive its value.
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Key Terms to Know
Capitalization Rate (Cap Rate)
A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
DepreciationA reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
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