Chapter 13 - Types of Value Flashcards
“The monetary relationship between properties and those who buy, sell, or use those properties.”
is the definition of __________
Value
- Value expresses an economic concept. As such, it is never a fact but always an opinion of the worth of a property at a given time in accordance with a specific definition of value*
- In appraisal practice, value must always be qualified - for example, market value, liquidation value, or investment value.*
“The present worth of the future benefits that accrue to real property ownership”
is definition of
value
What is definition of value?
-
The monetary relationship between properties and those who buy, sell, or use those properties. Value expresses an economic concept. As such, it is never a fact but always an opinion of the worth of a property at a given time in accordance with a specific definition of value.
* 2. The present worth of the future benefits that accrue to real property ownership”*
The amount paid in exchange for a good or commodity.
is definition of________
Price
Price is distinguished from value because price becomes a fact when the transaction is consummated as opposed to value, which is an estimate.
Definition of Price
- The amount paid in exchange for a good or commodity.*
- The amount asked, offered, or paid for a property.*
Comment: Once stated, price is a fact, whether it is publicly disclosed or retained in private. Because of the financial capabilities, motivations, or special interests of a given buyer or seller, the price paid for a property may or may not have any relation to the value that might be ascribed to that property by others.
The total dollar expenditure to develop an improvement; applies to either reproduction of an identical improvement or replacement with a functional equivalent, not exchange (price).
is definition of
Cost
- Comment: Cost is either a fact or an estimate of fact. (USPAP, 2016-2017 ed.)*
- In USPAP, the term cost is used either as a historic fact or as an appraisal estimate of current future or historic reproduction or replacement cost.”*
The amount required to create, produce, or obtain a property.
is definition of ________
Cost
- Comment: Cost is either a fact or an estimate of fact. (USPAP, 2016-2017 ed.)*
- In USPAP, the term cost is used either as a historic fact or as an appraisal estimate of current future or historic reproduction or replacement cost.”*
Definition of Cost
- The total dollar expenditure to develop an improvement; applies to either reproduction of an identical improvement or replacement with a functional equivalent, not exchange (price).
- The amount required to create, produce, or obtain a property.
Comment: Cost is either a fact or an estimate of fact. (USPAP, 2016-2017 ed.) In USPAP, the term cost is used either as a historic fact or as an appraisal estimate of current future or historic reproduction or replacement cost.”
It would take $275,000 to produce a single-family home on the owner’s lot. This $275,000 figure represents the home’s
- cost
- value
- price
- all of these
cost
“The amount asked, offered, or paid for a property” is the definition of
- value
- cost
- price
- worth
price
A property owner purchases a lot for $100,000 and pays $400,000 to have a home constructed on it. When it is completed, the owner sells the home for $560,000.
The appraiser for the buyer’s mortgage company appraises the home at $525,000. The sales contract for $560,000 represents the __________ of the property.
- cost
- value
- price
- none of these answers
price
True or False? Cost and value are the same.
False
Once stated, price is ________.
- an opinion
- a fact
- value
- synonymous with cost
a fact
“The monetary relationship between properties and those who buy, sell, or use those properties” is the definition of
- value
- cost
- price
- money
value
“The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the property should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under duress.”
describes __________
Market Value
“A transaction between unrelated parties who are each acting in their own best interest.”
is definition of _________
arm’s length transaction
Define arm’s length transaction
“A transaction between unrelated parties who are each acting in their own best interest.”
Examples of Non Arm’s-Length transaction:
- Urgent Job transfer
- Death of a spouse or close relative
- Need to buy and control an adjoining property
- Need to purchase a property for an assemblage
- Sale prior to impending foreclosure
- Sale under threat of condemnation
- Sale prior to proposed zoning change
- Sale influenced by tax considerations (it may have been part of a tax-free exchange)
The time a property remains on the market.
is definition of ________
Exposure Time
The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal.
is definition of _________
Exposure time
Comment: Exposure time is a retrospective estimate based on an analysis of past events assuming a competitive and open market.”
Define Exposure Time
- The time a property remains on the market.
- The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal.
Comment: Exposure time is a retrospective estimate based on an analysis of past events assuming a competitive and open market.”
How does an appraiser develop an opinion of reasonable exposure time?
- statistical information about days on market;
- information gathered through sales verification;
- interviews of market participants; and
- information from data collection services
The opinion of the time period for reasonable exposure is not intended to be a prediction of a date of sale. Instead, it is an integral part of the analyses conducted during the appraisal assignment.
If we have a normal buyer and seller acting in a normal fashion and the property sells under typical conditions in a reasonable time after having a normal exposure to the market and through typical financing means - then the sale price of the property should be consistent with __________.
market value
This can only be the result of an arm’s length transaction in which the two parties are acting calmly and rationally with no ulterior motives and acting under no undue duress.
“A type of value that reflects the amount that can be obtained for an asset if exchanged between parties.”
is definition of ______
Value in exchange
Examples include market value, fair value, liquidation value, and disposition value.
Market value is an example of value in exchange. It gets back to the historic system of barter or exchange. How much of something else (money) is a party willing to give up to acquire real property in exchange.
Define Value in Exchange
A type of value that reflects the amount that can be obtained for an asset if exchanged between parties. Examples include market value, fair value, liquidation value, and disposition value.”
“The value of a property assuming a specific use, which may or may not be the property’s highest and best use on the effective date of the appraisal.”
is definition of _______________
Value in use
Value in use may or may not be equal to market value but is different conceptually.
Comment: This may come into play in appraising commercial or industrial properties. A factory may be specialized and have a substantial value for one use only. An example might be a bottling plant which has been built and configured for that use.
But what if that use is no longer economically viable or is illegal under the current zoning? A property that has a specific use may be desirable to a limited market of purchasers. Care should be taken when appraising to identify if there is a market for that use.
Define Value in use
“The value of a property assuming a specific use, which may or may not be the property’s highest and best use on the effective date of the appraisal. Value in use may or may not be equal to market value but is different conceptually.”
“The value of a property interest to a particular investor or class of investors based on the investor’s specific requirements. Investment value may be different from market value because it depends on a set of investment criteria that are not necessarily typical of the market.”
is definition of ______________
Investment value
Comment: Market value examines the typical motivations of the average buyer and seller under all normal conditions of marketing and financing. Let us say that in arriving at an opinion of the market value for an income producing property, the appraiser concluded $500,000.
A different result might occur if an investor hires you and poses the question, “How much can I afford to pay for that property – assuming only a 10% down payment, tax free annual net income, and the ability to recapture my investment over a holding period of 10 years?” The answer to that question would be investment value; that is, what the property would be worth to that one specific investor, in order to achieve his personal investment goals. Depending on the individual investor’s specific requirements, investment value may differ substantially from market value.
