What is the primary difference between investment value and market value?
Correct Answer
D) Investment value uses one investor's criteria, not typical
Why this is correct: Investment value is specific to a single investor's unique requirements, such as desired rate of return, tax situation, or risk tolerance. Market value is an objective estimate of the most probable price in an open market transaction among typical buyers and sellers. Why the other choices are wrong: 'There is no significant difference between the two terms' is false; they are distinct valuation concepts. 'Investment value is always higher than market value' is incorrect; investment value can be higher, lower, or equal depending on the investor's criteria. 'Investment value applies only to commercial properties' is wrong; it can apply to any property type based on an individual's investment goals. Exam tip: Market value is for typical market participants; investment value is for a specific individual or entity.
Why This Is the Correct Answer
Investment value is tied to a particular investor or class of investors and their criteria; market value reflects the stated market-value definition and typical market participants. Investment value can be above or below market value.
More USPAP Questions
A property has $150,000 potential gross income, 5% vacancy and collection loss, and $50,000 operating expenses. If a market-derived effective gross income multiplier (EGIM) is 8.5, what value is indicated?
A property generates $85,000 in Net Operating Income and sells for $1,062,500. What is the overall capitalization rate?
A property has potential gross income of $180,000, vacancy and collection loss of $15,000, and operating expenses of $65,000. What is the Net Operating Income?
A comparable sale occurred 8 months ago for $425,000. Market analysis supports a simple, non-compounded market conditions adjustment of 0.5% of the original sale price per month. What is the adjusted sale price?
The economic characteristic of real property known as 'situs' refers to:
A property generates $150,000 in potential gross income. Market data indicates a 7% vacancy rate and operating expenses of 35% of effective gross income. If the cap rate is 9.5%, what is the indicated value?
A building's gross rent multiplier (GRM) is 120. If the monthly rent is $2,500, what is the indicated value?
A commercial building cost $2,500,000 to construct. The land value is $600,000. For this simplified calculation, apply 15% physical deterioration to building cost first, then apply 8% functional obsolescence to the remaining building amount. What is the depreciated cost of the improvements?
In the cost approach, economic obsolescence is characterized as:
The concept of regression in property values means that:
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam