Appraisals & Market Value

Real estate appraisal, property valuation or land valuation is the practice of developing an opinion of the value of real property, usually its market value. The need for appraisals arises from the nature of property as an investment class: no two properties are identical, and all properties differ from each other in their location - which is the most important determinant of their value. The absence of a market-based pricing mechanism determines the need for an expert appraisal/valuation of real estate/property.

A real estate appraisal is performed by a licensed or certified appraiser. If the appraiser's opinion is based on market value, then it must also be based on the highest and best use of the real property.

There are several different types and definitions of value sought by a real estate appraisal. Some of the most common types are listed below:

Market Value - The price at which an asset would trade in a competitive auction setting. Market value is usually interchangeable with open market value or fair value. International Valuation Standards (IVS) define market value as: Market value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgably, prudently, and without compulsion.

Value-In-Use - The net present value of a cash flow that an asset generates for a specific owner under a specific use. Value-in-use is the value to one particular user, and is usually below the market value of a property.

Investment Value - is the value to one particular investor, and is usually higher than the market value of a property.

Insurable Value - is the value of real property covered by an insurance policy. Generally it does not include the site value.

Liquidation Value -- may be analyzed as either a forced liquidation or an orderly liquidation and is a commonly sought standard of value in bankruptcy proceedings. It assumes a seller who is compelled to sell after an exposure period which is less than the market-normal timeframe.

Brian Serpone can be reached in the Harwich office of Today Real Estate at 508-568-8104.