Courtesy of the CA Board of Equalizations Assessor's Handbook 502:
MARKET VALUE, USE VALUE, AND LIMITED MARKET OR SPECIAL PURPOSE
PROPERTIES
It is important to distinguish between the concept of market value and another value concept
known as "use value" or "value in use."14 The concept of use value is concerned with the value of
property based on its utilization by a particular owner or group of owners. As defined in a current
appraisal text:
Use value is the value a specific property has for a specific use. In estimating use
value, the appraiser focuses on the value the real estate contributes to the
enterprise of which it is a part, without regard to the property’s highest and best
use or the monetary amount that might be realized upon its sale.15 [Emphasis
retained.]
It is clear that the standard of value for property tax purposes is market value and not value in
use. However, questions concerning market value in relation to use value sometimes arise when
appraising limited market or special use properties. A widely used appraisal text provides the
following definition of a limited market property:
A limited-market property is a property that has relatively few potential buyers at
a particular time. It may be a limited-market property because of unique design
features or changing market conditions. Large manufacturing plants, railroad
sidings, and research and development properties are examples of limited-market
properties that typically appeal to relatively few potential purchasers.
14 This concept is also sometimes referred to "value to an owner."
15 Appraisal Institute, The Appraisal of Real Estate, 11th ed. (Chicago: Appraisal Institute, 1996), 24.
16 Appraisal Institute, The Appraisal of Real Estate, 25.
Special use property is defined statutorily in section 401.6(b)(3).17 The definition is very similar
to that of limited market property:
"Special use property" means a limited market property with a unique physical
design, special construction materials, or a layout that restricts its utility to the use
for which it was built.
By definition, there is a very small market for limited use or special use properties; conceivably,
the market could be limited to the current owner. Limited market and special purpose properties
should be appraised at market value based on their current use or the most likely alternative use.
The appraiser may not use a method of valuation designed solely to capture the specific utility of
a property to a particular owner, but the appraiser should assume that there is a market composed
of potential buyers and sellers who would use the property in a manner similar to the way the
current owner uses it, unless it is clearly apparent that the market would adapt the property to
another use.
If the appraiser determines that the current use of a limited-market property is the highest and
best use and that this use is likely to continue, it is appropriate to consider the current use value
(i.e., the value of the property based upon its current use) as the property’s market value. If, on
the other hand, the appraiser determines that the current use is not the highest and best use and
that this use is not likely to continue, the property must be appraised based upon the alternative
use that is the highest and best use.18
So I don't seem to see any nuance. A buyer will pay a small amount for a building built for a specialized purpose. A municipality will pay the cost of a building built to their needs.
