Value In Use

Value In Use§

Definition§

Value In Use represents the worth of a property in its specific use, typically as it is currently employed. It quantifies the property’s value within a particular utility context, which may differ considerably from its market value—the price it could fetch under prevailing market conditions. This concept stands in contrast to the notion of the Highest and Best Use, which considers the most profitable potential use of the property.

Examples§

1. Agricultural Use: A tract of land utilized for cotton farming has a value in use of $10,000 per acre. However, if this land is in the path of growth of a major metropolitan area, its market value could rise to $200,000 per acre if it were employed for a residential subdivision.

2. Industrial Use: A warehouse used for industrial purposes may have a value in use of $500,000 due to its storage capability and location. Yet, its market value for potential residential development might be $1,500,000 due to local housing demand.

3. Commercial Building: A modest commercial property used as a grocery store has a value in use of $300,000, due to the store’s operations and existing clientele. If, however, the area becomes a trending shopping district, the market value might increase to $750,000 for potential upscale retail space.

Frequently Asked Questions (FAQs)§

Q1: How is Value In Use different from Market Value?

• A1: Value In Use is the worth of a property in its current specific use, while Market Value is the price achievable under current market conditions. These can vary considerably, with Market Value often being higher if the property has potential for different uses.

Q2: Can Value In Use be higher than Market Value?

• A2: Although less common, there could be scenarios where Value In Use exceeds Market Value, particularly when current operational profits significantly outstrip what could be earned through sale.

Q3: Why is Value In Use important for investors?

• A3: Investors consider Value In Use to assess the current performance and potential inefficiencies’ of a property, helping to gauge return on investment under existing or continued use scenarios.

Q4: How is Value In Use calculated?

• A4: It is calculated based on operational revenues, associated costs, and net benefits derived from employing the asset in its current hybrid, or specified use configuration.

Q5: Does highest and best use always equate to Value In Use?

• A5: No, the highest and best use might differ from the current use. Value In Use is based on what the property is used for now, whereas highest and best use assesses the most profitable potential utilization.

Related Terms§

• Market Value: The most probable price a property should bring in a competitive and open market.
• Fair Value: An estimate of the potential market price if the property were to be sold today.
• Highest and Best Use: The most profitable permissible use of a property, distinct from its current usage.

Online Resources§

1. Investopedia: Highest and Best Use Definition
2. The Appraisal Institute: Lessons on Use Value
3. American Society of Appraisers: Valuation Insights

References§

• International Valuation Standards Council (IVSC) – Books on property valuation.
• “Real Estate Principles” by Charles F. Floyd and Marcus T. Allen.
• “The Appraisal of Real Estate” by Appraisal Institute.

Suggested Books for Further Studies§

1. “Real Estate Valuation and Strategy: A Guide for Family Offices and Their Advisors” by John Kilpatrick
2. “Appraising and Selling Value-Added Real Estate” by Roosevelt Lee
3. “Valuation: Measuring and Managing the Value of Companies” by Tim Koller, Marc Goedhart, and David Wessels

Real Estate Basics: Value In Use Fundamentals Quiz§