The Types Of Values Sought With An Appraisal

A real estate appraisal develops an opinion on the value of a property. Most often, the use is to determine the market value of a home for a buyer and seller. However, because no two properties are alike and they may serve different needs such as a commercial space versus a home, there are different types of values sought with an appraisal.

In order to determine what type of value you seek with your appraisal, take a look at some of the varying types.

Some of the most common include:

• Market Value – This is the estimated value for which a property could exchange between a buyer and seller. This type of transaction is most often one done with open knowledge between two parties regarding the property’s value.

• Value-in-use – This is 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 is usually below the market value of a property.

• Investment value –This is the value an investor may purchase a property for and if oftentimes higher than a market value.

• 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 time-frame.

There are also several approaches to determining the fair market value of a property such as: The  cost approach, sales comparison approach and income approach.

We’ll save an explanation of what those are for our next blog, so stay tuned!