Certified Residential Appraiser Practice Exam

What does the Building Residual Technique help to determine?

1. Value of the land only

2. Contribution of improvements to total property value

3. Value of intangible assets

4. Operating expenses of the property

The correct answer is: Contribution of improvements to total property value

The Building Residual Technique is a method used in real estate appraising that specifically focuses on understanding how much the improvements or structures on a property contribute to the overall value. This technique involves estimating the total value of the property and then subtracting the value of the land to ascertain the residual value attributable to the improvements. In practice, the Building Residual Technique is particularly beneficial in scenarios where the property is income-producing, such as commercial or rental homes. By determining the value of the improvements, appraisers can assess their contribution effectively, giving a clearer picture of the overall investment being made. This understanding is critical for developers, investors, and lenders who are evaluating the potential returns from the property. The other options focus on aspects that are not directly tied to the Building Residual Technique. For instance, determining the value of the land only disregards the value added by the improvements. Similarly, evaluating intangible assets and operating expenses involves different methodologies and metrics that do not center on the relationship between the improvements and property value. Thus, the correct focus of the Building Residual Technique squarely lies in the contribution of improvements to the total property value.