Certified Residential Appraiser Practice Exam

What does "Book Value" refer to in real estate?

1. The market value of the property

2. The amount shown on the corporation's account books

3. The estimated resale value of a property

4. The purchase price of the property

The correct answer is: The amount shown on the corporation's account books

"Book Value" in real estate primarily refers to the amount shown on a corporation's account books, which represents the value of an asset as recorded in the company's financial statements. This value is typically derived from the original cost of the property minus any depreciation that has been applied to it over time. This accounting value does not necessarily reflect the current market value or resale value of the property, which can fluctuate based on various factors such as market conditions, the physical condition of the property, and other external influences. While other values like market or estimated resale values might provide a snapshot of what a property could sell for today, book value is strictly an accounting measure. It is important for understanding a company's financial posture and balance sheet rather than actual market conditions. In real estate practice, understanding book value helps appraisers and real estate professionals comprehend how properties are valued on financial statements, which can be crucial for investment analysis, tax implications, and when evaluating financial health in corporate real estate portfolios.