Property ValuationIntermediateDelaware Exam

What is 'value in exchange' in real estate valuation?

AThe value created when a property is exchanged in a 1031 exchange

BThe price a property will bring in the open market — essentially equivalent to market valueCorrect

CThe value obtained when trading real property for other assets

DSimply the value assigned only for tax purposes whenever property happens to be transferred between family members

Why The price a property will bring in the open market — essentially equivalent to market value Is Correct

Answer B: The price a property will bring in the open market — essentially equivalent to market value

Value in exchange (also called exchange value or market value) is the most probable price a property would bring in a competitive, open market transaction — the value to the typical market participant. It differs from value in use (the property's value to a specific user for a specific purpose).

Exam Tip: Property Valuation

Valuation questions focus on the three approaches to value: sales comparison, cost, and income. Know which approach is best for which property type. The income approach uses cap rate and NOI — memorize these formulas.

Key Property Valuation Terms in This Question

Appraisal

A professional estimate of a property's market value prepared by a licensed or certified appraiser.

1031 Exchange

A tax-deferred exchange allowing investors to sell one investment property and reinvest proceeds in a like-kind property while deferring capital gains taxes.

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Key Terms to Know

Appraisal

A professional estimate of a property's market value prepared by a licensed or certified appraiser.

1031 Exchange

A tax-deferred exchange allowing investors to sell one investment property and reinvest proceeds in a like-kind property while deferring capital gains taxes.

Gross Rent Multiplier (GRM)

A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.

Comparable Sales (Comps)

Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.