Which appraisal technique should be used when the land value is unknown?

The land residual technique is a valuable approach used in appraisal when the land value is not directly known. This method involves estimating the overall value of a property by determining the value of the improvements and subtracting that from the total value to derive the land value.

When the income generated by the property can be analyzed, appraisers often use this method to work backward. By understanding the income the property generates, they can estimate what portion of that income is attributable to the buildings (or improvements) and what is left for the land itself. It's particularly useful in assessing properties where high levels of development or investment potential exist but where market data on land sales may be sparse or unreliable.

This technique aligns well with scenarios where the impact of the structure needs to be isolated from the land itself, allowing appraisers to establish a value for the land based on the income it can produce in relation to its use, even in the absence of direct sales comparison data for the land. Thus, utilizing the land residual method becomes essential for accurately evaluating properties under these circumstances.