for properties, value is what someone is willing to pay for it and therefore makes it subjective. eg. an investor may purchase a house for twice its actual value even though it has a poor location. nevermind the reasons... does this mean future valuations will be distorted since an effective comparison cannot be made?
what is the real need for a valuation?
Feb 28, 2008
3 Replies
No. What do you mean mean by effective comparison, and why can it not be made? Provided future valuations remain objective and independent, and established criteria are used to determine them, then the valuations will fairly represent "value" (whatever that may be).
However, in a limited market, it's the turnover which sets the pattern. Once several investors purchase houses in the same area for "twice what they're worth", then all houses in the area suddenly *become* worth twice what they were. Then it's not the valuations, but the actual values which have become "distorted".
suppose a homebuyer chose to pay double for a unique period property because of aesthetic/sentimental/historical value and there is only one other house that can be used for a comparison, does the latter then double in value?
so a new investor would have to pay the distorted value for the remaining houses?
It might. Or it might not. It depends on those hard-to-pin-down "market forces". Nobody "chooses to pay double", except when he really wants it, and the seller needs the extra incentive to be persuaded to part with it at all. It should have no immediate direct effect on the other "comparison" property, or else the desperate buyer might have opted for that one instead.
Maybe. It depends on how keen he is to buy and on how unkeen the owners are to sell.
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