building residual approach - this is an real estate appraisal technique to derive a value for the building in a real estate appraisal. It can best explained with an example

The land value is in particular development is $120,000 and the net operating income is $50,000. The cap rate for the land is .08 and the building capitalization rate is .10. What is the property value. 

The building residual technique 120,000 x .08 = $9,600. This result is subtracted from the $50,000 to net $40,400. This is divided by the building capitalization rate of .10 which equals $404,000 for the building. The total property value would therefore be $404,000 plus $120,000 which equals $524,000