Principles of Value
PRINCIPLES OF VALUE
There principles of value are used to determine highest and best use and to establish value:
Anticipation: the anticipated future benefits to be derived from the property.
Balance: the equilibrium reached in a free market when complementary uses of neighboring property permit maximum value for individual properties and the neighborhood.
Change: the continuing effects of economic, social, and governmental forces on the property and its environment, resulting in continuous change in market value which must be anticipated.
Competition: the tendency of a highly profitable use to be duplicated by others until an excess supply of similar goods and services reduces profitability, and thus value.
Conformity: the creation of maximum market value through a reasonable degree of similarity of property use, appearance, and owner demographics.
Consistent Use: the requirement to value all aspects of a property: land, improvements, and personal property on the basis of a single class of usage at any given point in time.
Contribution: the incremental amount of value contributed to the total value of a property by any given component, as opposed to the actual cost of the component.
Demand: the amount of a commodity, good or service that would be purchased at various prices during a specific period.
Substitution: the market value of a property is affected by the cost of obtaining an equally desirable and valuable property as a substitute.
Supply: the amount of a commodity, good or service that would be offered for sale at various prices during a specific period.
Surplus Productivity: the net real property income after the costs of labor, capital, and management have been paid.
Variable Proportions: When the quantity of one productive service is increased in equal increments, while the quantities of other productive services remain fixed, the resulting increment of product will decrease after a certain point.
The steps in the appraisal process:
--identification of the subject;
--data collection: physical, market, comparables;
--data analysis: sales ratio study, rural land schedule, neighborhood review;
--application of the approaches to value;
--reconciliation of value indications and the final opinion of value