When applying the Building Residual Technique, which aspect is often calculated first?

In the Building Residual Technique, the first step typically involves calculating the land value. This is crucial because the technique focuses on determining the value of a property based on its income potential, while separating the value attributable to the land from the value derived from improvements (such as buildings and other structures).

By establishing the land value initially, appraisers can then assess the overall income the property can generate and subtract the costs associated with improvements. This process allows for a clearer understanding of how much value can be ascribed specifically to the building and any other enhancements, as opposed to simply aggregating the total value of the property without differentiating these components.

This method is particularly essential in a commercial context where the land itself may have a separate set of potential uses or values that need to be accounted for. Such a separation helps ensure that appraisal results are accurate, reflecting the true economic potential of the property under evaluation.