Valuing a property is a complex undertaking that takes many factors into account. Two key terms that come up again and again are asset value and market value. Both values play a decisive role in determining the value of a property, but they differ in their calculation basis and application. In this article, we take a detailed look at these two valuation approaches and explain their differences and their respective significance.
What is the asset value?
The material value is a valuation method that determines the material value of a property. This approach primarily takes into account the production costs of the property and the current condition of the building fabric. The relevant components of tangible assets include
- Land value: The value of the land on which the property stands.
- Construction value: The costs incurred for the construction of the property, less wear and tear.
- Value of outdoor facilities: Costs for garden, garage, fences and other structures.
The asset value is often used when insuring a property, as it represents a realistic replacement value. It is particularly relevant for owner-occupied properties and serves as a base value for building insurance.
What is the market value?
In contrast to asset value, market value (also known as fair value) is based on actual market conditions. It reflects the price that a property would fetch on the open market under normal circumstances. The calculation of the market value takes into account
- Location: The geographical and infrastructural location of the property is one of the most important factors.
- Supply and demand: The current market situation and the relationship between supply and demand in the region.
- Equipment and condition: The structural condition, the equipment and any renovations or modernizations.
- Macro- and microeconomic factors: Economic developments, interest rate levels and local market dynamics.
The market value is decisive for sales decisions, financing and tax issues. It provides information about the price a property is likely to achieve and is usually determined by professional valuers, often by comparing it with similar properties.
Bear in mind that the right of first refusal exists in the event of a sale. This is therefore relevant if you want to sell your property. However, if you transfer the property by way of a gift or pass it on to an heir, this right is not relevant.
How is the right of first refusal recorded?
The contractual right of first refusal requires a contract between the seller and the beneficiary as well as an entry in the land register. In the case of the statutory right of first refusal, a contractual agreement is often not necessary, but legal protection is advisable.
The following procedure is important in order to record the contractual right of first refusal in a legally valid manner:
- Conclude a right of first refusal agreement with the beneficiary, such as the tenant. In this contract, you undertake to give priority to the beneficiary when selling.
- Have the right of first refusal publicly notarized. This applies in particular to contractual, limited pre-emption rights for which a visit to the notary is necessary. The expert takes care of the public notarization, which is not necessary in the case of an unlimited right of first refusal.
- An entry in the land register is required for both limited and unlimited pre-emption rights. The notary will ensure that the entry is made and that the right of first refusal is valid vis-à-vis third parties. Without a land register entry, you are not in a position to assert the right of first refusal against persons who are not your contractual partner.
Differences between asset value and market value
The main difference between asset value and market value lies in the approach and the underlying factors of the valuation:
- Basis: The asset value is based on the material costs and condition of the property, while the market value takes into account market conditions and potential buyer demand.
- Application: The asset value is mainly used for insurance purposes and for owner-occupied real estate. The market value is crucial for sales processes, lending and tax valuations.
- Dynamics: The asset value is relatively stable and changes mainly due to wear and tear and maintenance. The market value, on the other hand, can fluctuate greatly depending on market trends, economic developments and regional characteristics.
Relevance for property owners and buyers
It is important for property owners and potential buyers to understand both values in order to make informed decisions. The market value is crucial for sellers in order to achieve the best possible price. Buyers, on the other hand, should consider the asset value to get an idea of the actual construction costs and any renovation requirements.
Sample calculation: application of asset value and market value
Let’s assume that a property in Zurich has a land value of CHF 500,000 and the production costs of the property amount to CHF 1,000,000. After 10 years, the property has a wear and tear of 10%, which corresponds to CHF 100,000. The asset value of the property would therefore be:
- Land value: CHF 500,000
- Building value: CHF 1,000,000 – CHF 100,000 (wear and tear) = CHF 90,000
- Total asset value: CHF 1,400,000
The market value of the same property could be CHF 2,000,000 due to the high demand and good location, which shows that the market value can be significantly higher than the asset value.
Conclusion: The right value for the right decision
Determining the correct value of a property depends heavily on the particular situation and the purpose of the valuation. While the tangible value provides a solid basis for insurance valuations and owner-occupied properties, the market value is essential for market transactions and financing. Both approaches have their justification and their specific fields of application.
It is advisable to consider both the asset value and the market value in order to obtain a complete picture of the value of the property. This enables well-founded decisions to be made, whether when buying, selling or financing a property.
For more information on calculating market value and using a market value calculator, visit properti and learn how modern tools and professional advice can help you get the best value for your property.
All data are without guarantee. The information on these Internet pages has been carefully researched. Nevertheless, no liability can be assumed for the accuracy of the information provided.
