What is a primary requirement when using the land residual capitalization method?

The land residual capitalization method requires the development of well-supported improvement values as a primary requirement because this technique is primarily used to determine the land value after accounting for the value of any improvements. In this approach, the income generated by a property must first be assessed, and from that income, the expenses and the return on investment for the improvements must be subtracted to isolate the value attributed to the land itself.

The focus is on understanding how much value is generated by the improvements, which allows the assessor to separate these from the income attributable to the land. A well-supported improvement value ensures that any conclusions drawn from the income generated are accurate and reliable, ultimately leading to a fair evaluation of the underlying land value.

While identifying retail rental values, tracking historical sales performance, and assessing environmental impacts are also important factors in real estate assessment, they do not form the foundation of the land residual capitalization method in the same way that well-supported improvement values do. Without properly established values for improvements, the method would not yield a credible basis for estimating land value.