Question

1-How is the term "market value" used in real estate valuation?

2-. How is the term "investment value" used in real estate valuation?

3-How are transaction prices used in real estate valuation?

4- List the eight steps of the valuation process used in conformity with Uniform Standards of Professional Appriasal Practice.

5- Explain the importance of arm's-length transactions when selecting comparable sales data , give examples that do not qualify as such.

NOTE: please write the answer in short

Answer 1

How is the term "market value" used in real estate valuation?

International Valuation Standards defines market value as "the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion".

"The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."

How is the term "investment value" used in real estate valuation?

Investment value is the value of a property to a particular investor. In the U.S. and U.K., it is equal to market value for the investor who has the capacity to put the property to good use—its highest-and-best-use, its most valuable use. For other investors with limited capacity or vision, investment value is lower because they cannot put the property to use in a way that is maximally productive

Investment value is the value of an asset to the owner or a prospective owner for individual investment or operational objectives. Investment Value is a subjective measure of value, a 'value-in-use', whilst Market Value is an objective 'value-in-exchange'.

How are transaction prices used in real estate valuation?

Real estate appraisal, property valuation or land valuation is the process of developing an opinion of value, for real property (usually market value). Real estate transactions often require appraisals because they occur infrequently and every property is unique (especially their condition, a key factor in valuation). The location also plays a key role in valuation. However, since property cannot change location, it is often the upgrades or improvements to the home that can change its value. Appraisal reports form the basis for mortgage loans, settling estates and divorces, taxation, and so on. Sometimes an appraisal report is used to establish a sale price for a property.

List the eight steps of the valuation process used in conformity with Uniform Standards of Professional Appraisal Practice.

Step 1- Identification of the problem: It means identifying the need of the client, use of the property, and relevant characteristic of the property.

Step 2- Scope of work determination.

Step 3- Data collection and property description: like market area data, general characteristic of neighbor hood, subject property data and comparable property data like sales, listing, vacancies etc.

Step 4- Data Analysis.

Step 5- Site value opinion.

Step 6- Application of the Approaches to Value: like sales and cost comparison, etc.

Step 7- Reconciliation of value indications and Final opinion of value.

Step 8- Report of defined value.

Explain the importance of arm's-length transactions when selecting comparable sales data , give examples that do not qualify as such.

An arm's length transaction is a business deal in which the buyers and sellers act independently and do not have any relationship to each other. The concept of an arm's length transaction assures that both parties in the deal are acting in their own self-interest and are not subject to any pressure or duress from the other party. Both parties usually have equal access to information related to the deal. It also assures third parties that there is no collusion between the buyer and seller.

If two strangers are involved in the sale and purchase of a house, it is likely that the final agreed-upon price is close to fair market value, assuming that both parties have equal bargaining power and equal information about the property. The seller would want a price that's as high as possible, and the buyer would want a price that is as low as possible. Otherwise, the agreed-upon price is likely to differ from the actual fair market value of the property.

Whether the parties are dealing at arm's length in a real estate transaction has a direct impact on financing by a bank of the transaction and municipal or local taxes, as well as the influence the transaction could have on setting comparable prices in the market.