A model that estimates land value based on its ability to generate income is known as what?

The model that estimates land value based on its capacity to generate income is referred to as the land residual technique. This approach is rooted in the principle that the value of land is closely tied to the income it can produce, typically through rental income or potential profits from commercial activities. Under this technique, the total income produced by a property is assessed, and the costs associated with improvements or structures are subtracted to isolate the land value itself.

This method is particularly effective in income-producing properties, where determining the land’s intrinsic value involves understanding how much money it can generate over time. As a tool used in real estate appraisal and assessment, the land residual technique helps assess the unencumbered value of undeveloped land or land that is utilized for specific income-generating purposes.

The other methods mentioned, such as the improvement model and cost method, focus on different aspects of property valuation that do not prioritize income generation as the core determinant of land value. Asset-based pricing generally refers to evaluating assets for investment purposes rather than specifically estimating land based on income potential.