What does the Principle of Residual Technique mainly assess?

The Principle of Residual Technique is primarily used to determine the value of property improvements by assessing how much value is created by those improvements in relation to the underlying land value. This technique operates on the premise that the total value of a property is derived from the land and the enhancements made to it.

In this context, the assessment focuses on the difference between the total anticipated income that a developed property can generate and the value of the land itself. Essentially, it calculates what portion of the total property value is attributable directly to the improvements made on the land. By isolating the value added through development or enhancement, this method helps in determining whether a project is economically feasible or assessing the contribution of various improvements to overall property value.

Understanding this principle is crucial for real estate professionals, particularly when evaluating investment opportunities or during the appraisal process, as it allows for informed decision-making regarding development potential and property utilization.