Understanding Different Types of Real Estate Value

Value, Value!

Having problems understanding different types of value? Here’s some examples that may help.

Subjective Value: Subjective values are influenced by personal opinion; e.g., what a person is willing to pay another for a house based on his or her own feelings, tastes and opinions. Beauty (and value) are in the eyes of the beholder. A buyer may not care about the traffic noise, the small yard or the tiny parking pad. For him or her, it’s all about the vintage front verandah and rear sun porch. It’s personal.

Objective Value: This value is based on facts, not opinions. An objective value of a house is based on the cost to build it; no emotion or preferences, just bricks and mortar; e.g., There’s no way I’d pay $650,00 for that house; I could build it for less.

Market Value: Market price is the price of one house, while market value is the estimated value of a house based on many market prices. For example, the market price of a sold home may be $449,500. However, the estimated market value of that home may differ based sales of other comparable homes (several market prices). An appraiser might value that same home at $460,000 given recent, nearby sales.

Value in Use: This value is based on an owner’s particular use, which is typically (but not always) higher than market value; e.g., An attached five-bay garage is just what I need to house my vintage automobiles. I’ll give them their asking price.

Investment Value: Think in terms of cash flow and return. Two adjacent 24-unit residential buildings are highly similar. The first generates $48,000 per month, while the second exceeds that by $7,000 monthly. Assuming all other things being equal, the investor will choose the second given its higher investment value.

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