Valuations And What They Mean

Whether you are a real estate buyer, seller, or investor, property valuations are an essential element of any potential real estate transaction. They help measure, through different perspectives, the value of a property as it relates to your intended plans for the property itself. Here are several types of Value that you should know about.

Market Value

This is the kind of valuation you will probably be most interested in knowing, and is a rough estimate of how much somebody might be willing to pay for your house. It is often derived from an analysis of similar houses to yours that have sold recently, and obviously depends on time, age, location, quality, and size, as well as other less-quantifiable measurements. Market Value is an estimate only, and is based on a seller looking to get the highest price selling to a buyer looking to pay lowest price. The area where those two overlap will vary in size, and Market Value is a way to peg that area as narrowly and accurately as possible.

Liquidation Value

Assets, like real estate, often take a long period of time on the market to be sold for a fair Market Value. Not only are relatively few people looking to buy a house at any given time, but also buying a house is a decision that requires a lot of planning and thought by both the buyers and the sellers. Liquidation Value is the likely price that a property will get when it is forced to be sold in a severely limited time frame, and is a common measure of value in bankruptcy proceedings. Generally, it falls significantly below Market Value.

Investment Value

Investment Value represents the value of the property to a specific investor with specific goals for the property or its development. In order to actually make the investment and purchase the property, an investor has to believe that they can benefit financially from the deal - in other words, the Investment Value has to be high enough to them for the cost to be worth it. Therefore, this value will usually be above Market Value for any investor seriously considering the purchase, unless they can somehow acquire the property at a discounted price, perhaps at Liquidation Value or through an agreement with the seller.

Value-in-use

Roughly, this is the value of cash flow that a property is generating for an individual while being used for a specific task. This is not a value that most homeowners will be concerned about, because it's financial data that is usually relevant for those making strategic decisions about what a property is being used for, such as whether to continue leasing it to a certain company or if it makes more sense to sell the property outright. Usually this value will be much lower than the Market Value of the property.

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