Investment value
Encyclopedia
Investment value is the value of a property to a particular investor. In the U.S. and U.K., it is equal to market value
for the investor who has the capacity to put the property to good use—its highest-and-best-use, its most valuable use. For other investors with limited capacity or vision, investment value is lower because they cannot put the property to use in a way that is maximally productive.
(IVS 2007) defines Investment Value in a way which allows for either a higher value than market value or a lower value than market value:
Investment Value is a subjective measure of value, a 'value-in-use', whilst Market Value
is an objective 'value-in-exchange'. As defined in IVS2, Investment Value is the valuation equivalent of the accountancy concept of Value-in-use
. Whereas IFRSs define the accountancy concepts of fair value
and Value-in-use in operational terms, IVSs define Market Value and Investment Value by way of generalised definitions.
Market value
Market value is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may differ in some...
for the investor who has the capacity to put the property to good use—its highest-and-best-use, its most valuable use. For other investors with limited capacity or vision, investment value is lower because they cannot put the property to use in a way that is maximally productive.
International Valuation Standards
The current edition of International Valuation StandardsInternational Valuation Standards Committee
The International Valuation Standards Council is charged with developing robust and transparent procedures for performing international valuations through a single set of globally recognized valuation standards, acceptable to the world’s capital markets organisations market participants and...
(IVS 2007) defines Investment Value in a way which allows for either a higher value than market value or a lower value than market value:
- Investment Value or Worth The value of property to a particular investor, or a class of investors, for identified investment objectives. This subjective concept relates specific property to a specific investor, group of investors, or entity with identifiable investment objectives and/or criteria.
Investment Value is a subjective measure of value, a 'value-in-use', whilst Market Value
Market value
Market value is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may differ in some...
is an objective 'value-in-exchange'. As defined in IVS2, Investment Value is the valuation equivalent of the accountancy concept of Value-in-use
Value-in-use
Value in Use is the net present value of a cash flow or other benefits that an asset generates for a specific owner under a specific use. In the U.S., Value-in-Use is generally estimated at a use which is less than highest-and-best use, and therefore value-in-use is generally lower than market...
. Whereas IFRSs define the accountancy concepts of fair value
Fair value
Fair value, also called fair price , is a concept used in accounting and economics, defined as a rational and unbiased estimate of the potential market price of a good, service, or asset, taking into account such objective factors as:* acquisition/production/distribution costs, replacement costs,...
and Value-in-use in operational terms, IVSs define Market Value and Investment Value by way of generalised definitions.