Residual Method

The residual value method is primarily used to determine land values. Simply put, the following formula is applied:

Residual Value (Land Value) = Market value upon completion – total investment costs

The residual value of this calculation corresponds to the land value.

Various auxiliary methods are used to determine the land value. One of these is a reverse calculation based on the value of a planned development project. In reverse calculation, the value of the projected property is determined using one of the following valuation methods: income approach, DCF (Discounted Cash Flow), or hedonic valuation method (comparison method). The estimated construction costs required for the project are then subtracted to obtain the land value of the property. With the residual value method, the land value can be determined based on an existing development project. Alternatively, a project can be calculated based on the applicable building regulations at the specific location, aiming for the most efficient use of the land.