Value of real estate

Unlike cost and price, value is always expressed as an opinion or estimate rather than a material fact. Value is more accurately described as a range rather than a precise number. The process of estimating introduces an initial margin of error. Buyers and sellers add another margin of error because they make decisions based on emotions and personal preferences, not just rational thought.Value is a simple, theoretical concept based on complex human behavior. Because there are a wide variety of beliefs and assumptions about economics and human nature, there is an ongoing controversy regarding the definition of value. As a result, people have created different value definitions for different uses.All real estate value is derived from the market place, but not all types of value are called market value. Among the 40 or more definitions of value I have found, some are worth mentioning here.Market Value is the most commonly-used type of real estate value because lenders use market value to make decisions about real estate loans. There are a number of definitions for market value, but they all include the same elements – specific property rights, a date of value, an informed buyer and seller, no undue stimulus, reasonable exposure in an open market and payment equivalent to cash.Fair Market Value, used in California condemnation practice, employs a slightly modified definition of market value which uses the term “highest price” instead of “most probable price.” This definition acknowledges that value is best described as a range and assigns fair market value to the upper end (rather than the middle) of the range, favoring the owner of the condemned property.Assessed Value is what the County Assessor uses to figure your property tax bill. In California, since the 1978 passage of Proposition 13 (the Jarvis-Gann Initiative), real property is assessed at its 1976 value and can trend upward only 2 percent annually, regardless of what the real estate market does. If you have owned your house for any length of time, your assessed value may only be a fraction of market value.Retrospective Value and Prospective Value are market value estimates based on some date in the past or the future.Liquidation Value or Quick Sale Value is a type of market value based on a short exposure time (days on market before selling).Investment Value is the value of a real estate investment to a particular investor which meets his or her investment requirements.Book Value or Fair Value is the value of an asset as shown on an accounting ledger, usually the original cost less a standard allowance for depreciation. Commercial investors know that real estate can decrease in book value while increasing in market value.Going Concern Value or Business Value is the value of a proven business enterprise, including patents and goodwill. This is a type of non-realty value usually estimated by accountants.Insurable Value is what the insurance company pays when a property is damaged or destroyed. This may be the full replacement cost or the replacement cost less depreciation. Insurable value does not normally include the land, which is not easily destroyed or damaged.