Inconsistencies in Value Definitions
by Neill F. McDonald, MAI
145 Bull Street
Savannah, GA 31401
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Liquidation Value and Disposition Value, as originally defined in The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010), are highly similar definitions that, when economic inconsistencies are corrected, are so similar that the only difference may be the amount of exposure time upon which the definitions are based. If the traditional definitions of market value are said to be based on an “unrestricted” exposure time, which is the same as a “reasonable” exposure time, then the only other definition needed by practitioners is a definition of value with a client-defined “restricted” exposure time.
Whether appraisals are retrospective, current, or prospective, one of the two definitions, “A Market Value Definition with an Unrestricted Exposure Time” or “A Value Definition with a Restricted Exposure Time,” should be suitable for any appraisal situation. Argument may be made that utilization of either definition as based on a restricted or unrestricted exposure time would result in a “non-market” value, but defining those positions is beyond the scope of this paper.
Part of the confusion among the various definitions of value utilized in the industry today is propagated in some part by the lack of understanding of the economics on which the appraisal process is based. Utilization of a properly and correctly-supported definition of value as it relates to real estate appraisal will make appraiser work-product much more understandable to the lending industry and to the public, which would be of great benefit to the public.
Please see related article titled Estimating Exposure Time – Much Ado about Nothing found on this website.