Types of Value
What the exam tests
The exam expects you to identify the type of value the assignment requires before any analysis, and to know which definitions are standard.
Common types
- Market value: the most probable price, in cash or equivalent, with a willing and informed buyer and seller, neither under undue stimulus, reasonable exposure in the open market, both acting prudently, as of a specified date.
- Market rent: the most probable rent under the same conditions.
- Value in use: value to a specific owner for a specific use; it can exceed market value.
- Investment value: value to a particular investor reflecting that investor's required return, financing, and tax position.
- Insurable value: the value of the destructible portions of the improvements, usually replacement cost, per policy terms; land is excluded.
- Liquidation value, disposition value, going-concern value, assessed value, and condemnation value each answer a different question.
Worked example
A 90-year-old church sits in a neighborhood now zoned for townhouses. The vacant site is worth $600,000; the building contributes little. Value in use to the congregation might be $900,000; market value as a redevelopment site is $600,000. A lender needs market value; a congregation deciding whether to relocate may want value in use. State which is being requested and define it.
Traps
Using market value as a synonym for price. Applying the market value definition to a non-market assignment. Inserting a personal definition without a cited source - USPAP requires identifying the type of value and its definition. Including land in insurable value.