Question

How can one property be valued less for investment or insurance purposes, and higher for market value purposes?

Answer 1

Introduction

Property is the most important resource when it comes to economic value. It is viewed as a capital producing resource for a producer or supplier while for end consumers most tend to build their houses over land. Since the overall cover of land is limited. It tends to increase in value over a period of time. Yet there seems to be confusion in how it is valued and cases are explained as follows.

Case Specifics:-

How can one property be valued less for investment or insurance purposes, and higher for market value purposes?

Properties tend to be lesser valued, in case of insurance and for investment purposes because these then attract higher payments as taxes to be made by the buyer or seller and also involve higher insurance premiums to be paid by the purchaser.

People prefer thus, to undervalue their own property so that the net outflow of purchasing insurance premiums and taxes in case of investment tend to be lower.

While selling such properties however, they tend to calculate the final market value of the property, so that they are able to get fair value for their money.

Such practices lead to generation of black money in the economy since these properties are sold via illegal channels in which to avoid high insurance or tax costs, some or most of the amount is collected via illegal channels at market rates and must necessarily be avoided.