Property Valuation
In Montana, the 'income residual technique' in appraisal is used to estimate the value of either the land or improvements when only the other component's value is known. Which statement best describes this technique?
AIt is only used for agricultural properties
BThe income attributed to the known component is subtracted from total NOI; the remaining (residual) income is capitalized to estimate the value of the unknown component✓ Correct
CIt averages land and building values
DIt is a simplified version of the sales comparison approach
Explanation
The building residual technique: deduct land return (land value x cap rate) from NOI to get building residual income; capitalize to get building value. The land residual technique works the same way in reverse.
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