An assignment calls for an opinion of investment value rather than market value. The appraiser must:
Correct Answer
D) State the value type and its definition, and develop it accordingly
Identify the type and definition of value, cite its source as required, and develop and communicate the opinion consistently with that premise. Investment value addresses the particular owner’s or prospective owner’s objectives and may be above, below or equal to market value. There is no standard conversion factor. Investor-specific assumptions require appropriate support and clear treatment; not every analytical input must be dictated by the client. Do not let intended users mistake an investment-value opinion for market value.
Why This Is the Correct Answer
Option D is correct because the appraiser must state the type and definition of value, cite its source, and develop and communicate the opinion consistently with that premise. Investment value reflects a particular owner's or prospective owner's objectives and may be above, below or equal to market value. Clear labeling keeps intended users from mistaking it for market value.
Why the Other Options Are Wrong
Option A: Decline, since only market value opinions may be developed by appraisers
Option A says to decline because only market value opinions may be developed. Appraisers may develop other value types, including investment value, when properly identified and defined.
Option B: Develop market value first and then apply a standard adjustment factor
Option B would develop market value first and apply a standard adjustment factor. There is no standard conversion factor between market value and investment value; investment value is developed from the specific investor's objectives.
Option C: Report the figure without labeling it, to avoid confusing intended users
Option C would report the figure without labeling it to avoid confusing intended users. Leaving the value type unlabeled would mislead users, and USPAP requires stating the type and definition of value.
Name It, Define It, Source It
Any value type is acceptable if the report names it, defines it and cites the definition's source, and the analysis matches it.
How to use: Use this whenever a question involves a value type other than market value.
Exam Tip
Options that bar non-market value types or apply a fixed conversion factor are distractors. Focus on identification, definition and consistent development.
Common Mistakes to Avoid
- -Believing appraisers can develop only market value
- -Assuming investment value is always higher than market value
- -Applying a fixed percentage to market value to obtain investment value
Concept Deep Dive
Analysis
This question tests whether appraisers may develop types of value other than market value and how they must handle them. USPAP requires identifying and stating the type and definition of value and citing its source. Investment value is a legitimate value type that must be developed and communicated on its own premise.
Background Knowledge
USPAP requires the appraiser to identify the type and definition of value in development and to state it, with its source, in the report. Investment value is the value to a particular investor based on that investor's requirements, and it can differ from market value. Investor-specific assumptions need appropriate support and clear disclosure.
Real-World Application
An investor asks an appraiser what a specific fourplex is worth to her given her required return and holding period. The appraiser identifies investment value, cites the definition's source and uses the investor's stated return requirements in the analysis. The report states that the opinion is not market value.
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