What does the term 'investment value' refer to in real estate appraisal?

The term 'investment value' in real estate appraisal refers to the value of a property based on the specific circumstances and expectations of an individual investor. This concept recognizes that different investors might perceive the value of a property differently, depending on factors such as their financial situation, investment goals, tax situations, and potential returns they expect to realize.

This perspective goes beyond the market value, which is more generalized and reflects what a typical buyer might pay. By applying the owner's viewpoint, investment value captures aspects like projected cash flows, personal motivations, and the particular investor's cost of capital. Each investor will have unique expectations regarding the income generated from the property and the risk they’re willing to take, resulting in a personalized valuation that may differ from the broader market perspective.

Understanding investment value is crucial for appraisers as it helps gauge how a property would perform for specific buyers or investors, thus informing negotiations and investment decisions.