When is it appropriate to use the land residual method in property appraisal?

The land residual method is particularly useful when the value of the land itself is not directly known or cannot be easily determined through comparable sales or direct land valuation approaches. This method allows appraisers to isolate the value of the land in a property by using the income generated by the entire property, which includes both land and buildings. By calculating the income attributed to the improvements and subtracting that from the total property income, the remaining value can be attributed to the land.

This approach is especially relevant in scenarios where the subject's land is not actively traded, or when enhancements made to the land are difficult to quantify. Hence, it becomes an effective tool to arrive at a land value when traditional methods might fall short. The land residual method capitalizes on the income-producing capability of the property to derive the value of the land component separately, making it a practical approach in complex appraisal situations.