Price versus Value

There can be differences between what the property is really worth (market value) and what the cost to buy it (price) is. A price paid might not represent that property’s market value.

The most common reason for value differing from price is that either the buyer or the seller is uninformed as to what a property’s market value is but nevertheless agrees on a contract at a certain price that is either too expensive or too cheap. This is unfortunate for one of the two parties.

It is the obligation of a Real Property Appraiser or Real Estate Appraiser is to estimate and report the true market value of a property and not its market price.

There are other types of values that can be sought by clients, including:

Value in use:

The net present value (NPV) 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 may be above or below the market value of a property.

Insurable Value:

The value of real property covered by an insurance policy. Generally, it does not include the site value.

Liquidation value:

Commonly, this type of value is the standard of value in bankruptcy or foreclosure proceedings. It assumes a seller who is compelled to sell after an exposure period that is less than the market-normal time frame.

Life Estate Valuations:

A life estate is a unique type of partial interest. In this form of estate, a designated beneficiary, the life tenant has the right to use and occupy a parcel of real estate for the duration of his or her life.

The life tenant generally enjoys this right without any obligation to pay rent, but typically he or she must maintain the property and pay all applicable liens and taxes.

The owner of a real property encumbered by a life estate Is called the remainderman; he or she enjoys the remaining rights to the property once the life tenant is deceased.

The value of each interest can be estimated by the real estate appraiser.