<abstract xmlns="http://www.w3.org/1999/xhtml"><p> In the valuation of a property subject to development, the valuer may consider the potential aspect of the value of both land to be improved and a building to be refurbished. These kinds of valuations are complex, especially when a prudent assessment of value is required. In general terms, all properties may have potential development which, in some cases, can be termed “hope”. In particular, uncertainty regarding the change in the legal framework may create expectations as to the uncertain variation of property value in the future. In these cases, it may be necessary to deal with hope value or future value, trying to reach the value of a property subjected to uncertain changes. Hope value is the difference between the existing use value and the price that the market might pay for future transformation. The main aim of the paper is the elaboration of a methodology to determine the hope value. In this work, a real option model for the valuation of hope value in the real estate market will be applied to a small sample of residential properties located in Olsztyn that are subject to possible transformation. The possibility of a transformation may create expectations and may influence the value of the property. Although the applications of these methods to real estate valuation are fairly recent, the International Valuation Standards have included real option theory in the income approach as a valuation method since 2011.</p></abstract>

In the valuation of a property subject to development, the valuer may consider the potential aspect of the value of both land to be improved and a building to be refurbished. These kinds of valuations are complex, especially when a prudent assessment of value is required. In general terms, all properties may have potential development which, in some cases, can be termed “hope”. In particular, uncertainty regarding the change in the legal framework may create expectations as to the uncertain variation of property value in the future. In these cases, it may be necessary to deal with hope value or future value, trying to reach the value of a property subjected to uncertain changes. Hope value is the difference between the existing use value and the price that the market might pay for future transformation. The main aim of the paper is the elaboration of a methodology to determine the hope value. In this work, a real option model for the valuation of hope value in the real estate market will be applied to a small sample of residential properties located in Olsztyn that are subject to possible transformation. The possibility of a transformation may create expectations and may influence the value of the property. Although the applications of these methods to real estate valuation are fairly recent, the International Valuation Standards have included real option theory in the income approach as a valuation method since 2011.

The Valuation of Hope Value for Real Estate Development

Real Estate Management and Valuation

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

{"article-title":"The Valuation of Hope Value for Real Estate Development"}

In the valuation of a property subject to development, the valuer may consider the potential aspect of the value of both land to be improved and a building to...

The Valuation of Hope Value for Real Estate Development

Published Online: Jul 14, 2017

Page range: 91 - 101

DOI: https://doi.org/10.1515/remav-2017-0016

Keywords
real estate development, option theory, hope value

© 2017

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

The Valuation of Hope Value for Real Estate Development

Published Online: Jul 14, 2017

Page range: 91 - 101

DOI: https://doi.org/10.1515/remav-2017-0016

Keywordsreal estate development, option theory, hope value

© 2017

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Keywords
real estate development, option theory, hope value