Chapter 2 - The Nature Of Value Flashcards
Ceiling Price
The purchasers top price.
Floor Price
The sellers minimum price.
Value of Exchange
Sale price
Value to the Owner
Floor and ceiling prices. In this case the owner can be the purchaser (future owner) or the seller.
Investment Value
An entity specific basis of value. It reflects the circumstances and financial objectives of the specific for which the valuation is being produced.
Types of Subjective Values
Investment and Special Value
Special Value
An amount that reflects the particular attributes of a real property asset that are only a value to a special purchaser.
Types of objective values
Market value, insurable value, lending value, taxable value, assessed value, actual value, book value.
Objective value
A number based on factual market evidence that could be verified by a third-party
Subjective value
The value as it pertains to the buyer or seller (Owner). It’s value is completely hypothetical and based on the personal tastes, preferences, or biases of one specific individual.
Assessed value (actual value)
A value set on real estate and personal property by a government as a basis for levying taxes. This may be higher or lower than market value or based on an assessment ratio that as a percentage of market value.
Book value
Accountants list assets at their purchase price or cost of construction, with separate value sold for land and buildings. Over time, the original amount is reduce through depreciation, and modified by adding the value of any capital improvements – those that increase the value of the property or extend it’s remaining economic life
Fair value
The estimated price for the transfer of an asset or liability between identified knowledgable and willing parties that properly reflects the respective interests of those parties
Going concern value
A value that is tied to the business operation itself such as specifically designed buildings for a franchise restaurant (Burger King), bowling alley, hotel, etc.
Hypothetical value
Value given two properties under construction or rezoned. It may be used when required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison. (“as if complete”)
Insurable value
Refers to the undepreciated cost of replacement of the subject properties. This is required for property insurance or claims of loss purposes
Lending value
The value establish to support the mortgage financing of the property. Often, the lending value is expressed as a percentage of market value, and establishes the upper limit of funds that a mortgagee would be prepared to lend
Limited market and special use properties
An example of limited market is crownland that a government wishes to sell or lease. This land is often isolated but highly desirable for recreational use.
Liquidation value
The most probable price that is specified interest in real property is likely to bring under all of the following conditions; 1.consumption of a sale will occur within a severely limited future marketing period specified by the client.
- The actual market conditions currently prevailing are those two which the appraised property interest as subjects.
- The buyer is acting prudently and knowledgeably.
- The seller is under extreme compulsion to sell.
- The buyer is typically motivated.
- The buyer is acting in what here she considers his or her best interest.
- A limited marketing efforts and time will be allowed for the completion of the sale.
- Payment will be made in cash in US dollars or in terms of financial arrangements comparable there too.
- The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
Quick sale value (forced sale value)
A value resulting from a sale under compulsion, often involving a mortgage holder under a for closure for the marketing. It is a normally short
Synergistic value
And additional element of value created by the combination of two or more interest that’s where the value of the combined interests worth more than the sum of the original interests
Taxable value
The value established and defined by governments for tax situations such as for a state, capital gains or gift tax purposes
Value in use/use value
The value of a property as it is currently used not its value considering alternative uses. This definition of value maybe used where legislation has been an acted to preserve farmland, Timberland or other open space land on urban fringes.
Market value
Most probable price which a property should bring in a competitive an open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undo stimulus. [CUSP a P]
Broker Price Opinion (BPO)
And opinion of value from the broker, or a lender believes the time and expense of an appraisal is not warranted
Forced sale value (or liquidation value or quick sale value)
Value resulting from the sale under compulsion, often involving a mortgage holder under a for closure or a relocation, where the marketing is abnormally short.
What are the four independent economic values that create value
Utility
Scarcity
Desire
Effective purchasing power
What are two types of supply factors
Utility and scarcity.
What are two types of demand factors?
Desire and effective purchasing power
Utility
The ability of a product to satisfy a human want, need, or desire. All properties must have utility to tenants, owner investors, or owner occupants.
Scarcity
The presence or anticipated under supply of an item relative to the demand for it. Conditions of scarcity contribute to value.
Desire
Purchasers wish for an item to satisfy human needs (example; shelter, clothing, food, companionship) or individual dance beyond essential life support needs.
Effective purchasing power
The ability of an individual or group to participate in a market, i.e., to acquire goods and services with cash or it’s equivalent.
Real estate owned [REO] Value
The property that does not sell in for closure and ownership reverts to the mortgage holder; maybe an atypical motivated vendor.
The four agents of production first identified in the classical school by economic thinkers were
Labor, capital, coordination, and land.
Price
The amount of a particular purchaser agrees to pay at a particular seller agrees to except under the circumstances surrounding the transaction.
A price, once finalized, refers to a sale or transaction price it implies an exchange. Price is an accomplished fact.
Cost
The term cost is used by appraiser is in relation to production, not exchange. Cost late either be an accomplished fact or a current estimate.
Value
In the market place value is commonly perceived as the anticipation of benefits to be obtained in the future. Appraisal reflects value at a particular point in time. Value at the given time represents the monetary worth of property, goods, or services to buyers and sellers.
Business value
The market value of an ongoing business including all tangible and intangible assets of the going concern, as if sold in aggregate.
Public interest value
The general term covering a family of value concepts that relate the highest and best use of property to non-economic uses. This is driven by social, political, and public policy goals.
Actual cash value
Replacement cost minus normal depreciation used primarily for insurance
