LAND VALUE BY RESIDUAL CAPITALIZATION METHOD

 

The MAIN IDEA in this method used in real estate appraisal is that the sum of all the COSTS, including the corresponding benefits, has to be EQUAL at the PRICE of REAL-ESTATE PROPERTY SALE. This price is estimated according to highest and best use principle.

From that PRODUCT PRICE, ALL the well-known or evaluables COSTS ARE SUBTRACTED: necessary urbanization, material cost of execution of works, cost of technical projects, general expenses, direction and control expenses, industrial benefit of contractors, legal costs, insurances and benefit of the promoter.

The REST, DIFFERENCE between the PRODUCT price and costs, result of subtracting cost from the PRICE of PROPERTY SALE, are equivalent to the only cost not including between the previous ones: the cost of the urban land, VALUE OF the urban AREA, theoretical price of the REAL-ESTATE PROPERTY.

 

The calculation method, when reducing the costs of elaboration of the final real-estate product price is known as RESIDUAL CAPITALIZATION PROCEDURE.

If you have information that define the urban zoning, the RESIDUAL STATIC CAPITALIZATION can obtain a good value approaching, a good real-estate appraisal. If you know when the project can be developed it, you will obtain one more precise valuation using the RESIDUAL DYNAMIC CAPITALIZATION PROCEDURE.

The links that follow provide one more a detailed explanation.

- Commercialized Product: the urbanizable LAND.

- The value of the ground.

- Use of the ground and lucrative advantage. Incidence of the Floor Area Ratio (FAR).

- Incidence of urbanizing costs.

- Removal in incidence of the production costs of the building (construction costs).

- The income from saling real estate production of building and their evolution.

- Income of production for the calculation of the ground value by the dynamic method. General case.

- Evolution of urbanizing costs and production to be used by dynamic method.

- Critical subjects for using subtracting method to appraise value of the ground.

- Links to theoretical documents on the value of the ground.

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