“What’s my property worth?”
By John Tricomi
One of the most common – yet least effective – ways to open the dialogue with a real estate appraiser is by asking the loaded question, “So, what is my property worth?”
Understanding the value of a real estate asset involves factors above and beyond what meets the eye.
There are different ways of defining “value” that are each useful for different reasons. A qualified real estate appraiser’s role is to help differentiate between them and offer counsel on which is most applicable to a particular situation, based on the intended use of the appraisal.
The Appraisal of Real Estate, 14th
Edition, clearly identifies “market value” components and describes how they differ from other types of value.
Market value is the most commonly developed type of value. Contrary to most public opinion, it is not simply “willing buyer and willing seller” or “a property is worth what someone is willing to pay.” Rather, each component of market value is meaningful and similarly weighted.
Specific factors to note about market value include:
- It represents the most probable price, and not necessarily the highest price, that a property will bring in a competitive market.
- Value changes as market conditions change over time. Consequently, the appraiser’s developed market value is effective as of a specific date.
- Market value has “cash” as a premise, as favorable financing provided to a buyer by the seller can affect a sale price.
- The necessity of a property’s reasonable exposure allows time for market participants to shop and compare competitive properties.
- The buyer and seller should be typically motivated, well informed and act accordingly, exercising good judgement so as to make a rational decision, free of any constraints or pressure.
These and other factors mesh to create a selling price that approaches, or is equal to, market value.
Other types of value include fair value, use value, investment value, value of a going concern, assessed value, insurable value, liquidation value and disposition value. Quickly touching on the more common ones:
- Use value is described as the value a specific property has for a specific use, according to the Appraisal of Real Estate, 14th Edition.
- Investment value has as its premise investment criteria, which may or may not be typical of the market.
- Assessed value in ad valorem taxation is based on an assessment ratio, or a percentage of market value, which may vary with different municipalities.
- Business value, or the market value of a going concern, includes tangible and intangible property assets.
As noted from the descriptions of some of the different types of value, their development, in some instances, considers other factors in addition to some of those inherent in market value.
Bottom line, be informed of the various components, both specific and common, to each type of value, and lean on a qualified appraiser to guide you when you have questions.