BUILDING RESIDUAL METHOD Meaning and
Definition
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The term "building residual method" refers to a valuation technique used in real estate to determine the residual value of a property after considering the cost of constructing a new building on the land.
In this method, the value of the property is estimated by subtracting the cost of construction from the total value. The residual value is the difference between the total value and the cost of construction, representing the remaining worth of the property after deducting the expenses of building a new structure.
To apply the building residual method, several factors need to be considered. These include the current market value of similar buildings, the cost of construction materials and labor, any income generated from the property, and the length of time it would take to construct the new building.
This method is particularly useful when valuing properties with older buildings that may need to be demolished and replaced to maximize the potential value of the land. It allows for a more accurate assessment of the property's worth by taking into account the expenses associated with constructing a new building.
Overall, the building residual method is a valuable tool for real estate professionals and investors to determine the residual value of a property, considering the cost of construction and potential income generated.
