In commercial real estate, the value of a developed property can be divided into two parts: 1) the value of the building(s) that sit on the land, and 2) the value of the land itself.
To calculate the second part, the land value (or, as we call it, the Residual Land Value), one first determines
A) what price someone will pay for both the building and the land together,
B) what it would cost to build that same building, including developer’s profit.
Subtract B) from A), and you get the Residual Land Value.
Note that A) can swing up and down wildly and rapidly depending on the economy. On the … (more)