Ten Principles of Value
While many property owners could probably make a fair guess as to the value of their property, they would still be unable to identify all or most of the factors that contribute to that value. The knowledge of precisely what those factors are how they influence value is part of what lends credence to a professional estimate of market value.
The basic value principles are interrelated and their relative importance will vary depending up on particular local conditions. When analyzing a property to determine market value, it is important to consider it in light of all the following principles.
1. Highest and Best Use. The use that provides the greatest net return over a period of time. It could be determined by current zoning or changes in the zoning. Residential properties, if zoned as such, are at their highest and best use.
2. Supply and Demand. Values tend to rise as demand increases and/or supply decreases. The market activity has an effect on the value. Perception of the public affects demand. The lack of supply itself will not increase demand. There is other factors that must be considered.
3. Substitution. The maximum value tends to be set by the cost of purchasing an equally desirable replacement.
4. Change. The future is the primary consideration over the past when estimating value. Natural Phenomena, war and tear, depreciation and the demands of the market change continuously.
5. Balance. When the addition of improvements increases the property value.
6. Conformity. The value is affected by the conformity to the existing neighborhoods.
7. Anticipation. Value can increase or decrease in anticipation of some future benefit.
8. Increasing returns. As long as the improvements produce an increase or income or value. Some improvements do not produce an increase in value and some do.
9. Diminishing returns. When the improvements do not add to the value.
10. Contribution. The value an improvement adds to the overall value.
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