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Investment Value Vs Market Value

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Ramon A. Olivarez

Junior Member
Joined
Jan 24, 2003
Professional Status
Certified General Appraiser
State
Texas
I need a simple definition of Investment Value as compared to Market Value. Is there a difference in value? This is in regard to real estate. Make sense? I have an appraisal stating it was done based on Investment Value.
 

Paul Ness MAI

Member
Joined
Jan 14, 2002
Professional Status
Certified General Appraiser
State
Pennsylvania
Investment value is the value of a specific investment to a specific investor based on their individual investment requirements and motivations. Market value is basically the value of a property in an open market. In simple terms investment value reflects what one specific investor would pay and market value reflects what a typical knowledgeable buyer would pay. Market value is required in financing appraisals and most other types of appraisals, while investment value is limited pretty much to investor due diligence situations.
 

Ramon A. Olivarez

Junior Member
Joined
Jan 24, 2003
Professional Status
Certified General Appraiser
State
Texas
When is Investment Value less than Market Value? I can it being higher, but lower?
 

Paul Ness MAI

Member
Joined
Jan 14, 2002
Professional Status
Certified General Appraiser
State
Pennsylvania
Investment value could be either higher or lower than market value. It would be higher if an investor qualifies for any type of non-assumable low or no-interest government financing or favorable tax treatment that is not transferable. It would be lower if an investor required an above-average return for a specific property type due to portfolio mix.
 

Ramon A. Olivarez

Junior Member
Joined
Jan 24, 2003
Professional Status
Certified General Appraiser
State
Texas
Paul, thanks alot. That cleared up the question I had.
 

Fred

Elite Member
Joined
Jan 15, 2002
Professional Status
Retired Appraiser
State
Virgin Islands
Alejandro,
You had good answers, so far. I would say the key is that investment value is the opinion of just one person, whereas market value represents the mutual opinion of at least two persons.

I wonder why you would have an investment value aprpaisal that sounds like it was done by someone else. If a client wanted numbers based on personal assumptions it seems unlikely that this report would wind up in anyone else's hands.

Is it possible that you have an appraisal where someone slipped in the phrase "investment value" as some sort of CYA for unwarranted assumptions?
 

Ramon A. Olivarez

Junior Member
Joined
Jan 24, 2003
Professional Status
Certified General Appraiser
State
Texas
Actually..I was trying to get a clear picture of some appraisals that had been given as evidence of market value. All were appraised based on "investment value". They were evidence in an appeal of value in a property tax hearing.
 

Paul Ness MAI

Member
Joined
Jan 14, 2002
Professional Status
Certified General Appraiser
State
Pennsylvania
Wow, investment value for a tax appeal???? Very interesting! <_<
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
As used in my class.....

Market value is set by the market, investment value is set by the investor who may have specifice investment goals that need to be met.
 

Fred

Elite Member
Joined
Jan 15, 2002
Professional Status
Retired Appraiser
State
Virgin Islands
Mike,
To me, investment value is when you try to explain to a guy that the "market" value for a certain Picasso is $20 million and he says, "I wouldn't give you nickel for it, the spoon is coming out of her ear."

Alejandro,
It would be my understanding that the states and territories that have property tax have statutory standards for value. I had an assignment that involved researching them. You can find them on "Findlaw." All the ones I saw were market value equivalents, even though some of them are old and may carry names like 'fair cash market value.'

IMO, appraisers who accept tax appeal work, should know the statutory value definion and hopefully a few cases in which the courts have applied the standard. To operate outside a legally required value definition sounds like someone is breaking the USPAP Competency Rule, at least. The "purpose" of the appraisal includes the defining the value to be estimated. Any appraisal that does not use the legally required standard of value would be void at that point without any further consideration. There is a high likelihood that an appraiser coming into to tax appeal with an appraisal for investment value is trying to pull a fast one.
 
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