California Real Estate Broker ExaminationValuation and AppraisalMedium
A developer is planning to construct a new apartment complex. In determining the project's feasibility, they are primarily concerned with the profit they expect to make from the venture. Which type of value is most relevant to their decision-making process?
- AMarket Value
- BInvestment Value
- CInsurable Value
- DAssessed Value
Show answer & explanationAnswer & explanation
Correct answer: B. Investment Value
Investment value is the specific value of a property to a particular investor, based on their individual investment goals, tax situation, and return expectations. For a developer, the potential profit and return on investment are paramount, making investment value the most relevant.
Why the other options are wrong
- A. Market value is the most probable price a property should bring in a competitive market, not specific to an investor's profit needs.
- C. Insurable value relates to the cost of replacing or reconstructing the property, not profit potential.
- D. Assessed value is for property tax purposes, not investment decisions.
Investment Value
Investment value is the specific value of an income-producing property to a particular investor, based on their individual investment objectives, risk tolerance, and required rate of return.
- Subjective, specific to an individual investor.
- Considers investor's financial goals and tax situation.
- Differs from market value, which is objective and market-driven.
Memory trick: Market for all, Investment for me, Assessed for tax, Insured for safety.