An investor will pay more for a building next to its existing headquarters than other buyers would. The value of the building to that particular investor is called:
Correct Answer
B) Investment value
Investment value is the value of an investment to a particular investor, not to the market in general. Market value reflects typical market participants, going-concern value is the value of an operating business, and book value is an accounting figure.
Why This Is the Correct Answer
Option B is correct because investment value is the value of an investment to a particular investor, not to the market in general. The premium this investor would pay comes from its own adjacent headquarters, a reason that typical market participants do not have. Investment value is a variant of use value, tied to a specific owner or user.
Why the Other Options Are Wrong
Option A: Market value
Option A, market value, reflects what typical, informed market participants would pay, not the extra amount one investor would pay because of its own adjacent headquarters.
Option C: Going-concern value
Option C, going-concern value, is the value of an operating business as a whole, not the value of a building to one particular investor.
Option D: Book value
Option D, book value, is an accounting figure based on recorded cost less depreciation, not an opinion of what the building is worth to a specific investor.
Investor-specific means investment value
Market value is what the crowd would pay; investment value is what one particular investor would pay for its own reasons.
How to use: Use this when a question describes a buyer paying more or less than others because of its own special situation.
Exam Tip
Look for wording such as 'to that particular investor' or 'to a specific owner'; these signal investment value rather than market value.
Common Mistakes to Avoid
- -Treating a special buyer's premium as evidence of market value
- -Confusing investment value with going-concern value of a business
- -Assuming investment value must exceed market value
Concept Deep Dive
Analysis
This question tests whether you can tell value to one specific buyer apart from value to the market as a whole. The investor would pay more than other buyers because the building sits next to its own headquarters, a benefit no typical buyer shares. When a value depends on one party's own needs or situation, it is investment value, not market value.
Background Knowledge
Appraisers distinguish market value, which reflects typical buyers and sellers, from investment value, which reflects one investor's specific requirements and circumstances. Investment value can be higher or lower than market value. Identifying which type of value the assignment requires is a basic step in any appraisal assignment.
Real-World Application
A hospital system wants the medical office building next to its main campus and offers well above recent sale prices of similar buildings. An appraiser asked for market value would rely on typical buyer behavior, while a consultant asked for the hospital's investment value would consider the hospital's own synergies and needs.
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