Property ValuationIntermediateDelaware Exam

What is 'value in use' versus 'market value' in real estate appraisal?

ABoth terms are synonymous in modern appraisal practice

BValue in use is the value of the property to a specific user for a specific purpose (which may be above or below market value); market value is the price the property would bring in an open, arms-length marketCorrect

CMarket value is always higher than value in use

DValue in use applies only ever to commercial properties; market value applies only ever to residential properties instead, though many experienced professionals would note some exceptions depending on the circumstances

Why Value in use is the value of the property to a specific user for a specific purpose (which may be above or below market value); market value is the price the property would bring in an open, arms-length market Is Correct

Answer B: Value in use is the value of the property to a specific user for a specific purpose (which may be above or below market value); market value is the price the property would bring in an open, arms-length market

Value in use is the value to a specific owner for a specific use — it can differ significantly from market value. Example: a specialized manufacturing facility may have high value in use to the current operator but low market value because few buyers need that specific facility.

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.

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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.

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.

Comparable Sales (Comps)

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

Capitalization Rate (Cap Rate)

A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.

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