Existing Use Value (EUV)

Existing Use Value (EUV) refers to the price at which a property can be sold on the open market, assuming that it can only be used for its current use and that it is vacant.
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Definition

Existing Use Value (EUV) is a concept in property and asset valuation that represents the price at which a property can be sold on the open market, assuming only its current use and vacant possession. This term is commonly used in real estate and financial reporting to ascertain the value of properties under specific, ongoing usage conditions without considering alternative uses that could potentially alter its valuation.

Examples

  1. Commercial Office Building:

    • Scenario: A commercial office building in a city center is currently leased as office space.
    • EUV: The EUV will consider the building as continued office space and estimate its open market value based on similar properties currently used as offices in the vicinity.

  2. Agricultural Land:

    • Scenario: A piece of land is currently being used for farming.
    • EUV: The EUV will reflect the value of the land based on its existing use as farmland, excluding potential uses like commercial development or residential housing.

Frequently Asked Questions (FAQs)

Q1: How is Existing Use Value different from Market Value?

  • A1: The Market Value of a property considers the highest and best use of the property, which can include potential alternative uses. In contrast, the Existing Use Value strictly evaluates the property based on its current use.

Q2: Is EUV applicable in all property valuations?

  • A2: EUV is specifically useful for properties in contexts where existing use is relevant, such as in regulatory and financial reporting requirements. However, for development properties, the Market Value might be more pertinent.

Q3: Can EUV be higher than Market Value?

  • A3: Typically, EUV is lower or equal to Market Value because it does not account for various potential uses that may increase a property’s value.

Q4: Does EUV consider rental income?

  • A4: Yes, EUV considers rental income generated from existing usage, assuming the property remains in its current state and usage.
  • Market Value: The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and willing seller in an arm’s length transaction.
  • Highest and Best Use (HBU): The reasonably likely and legal use of a property that is physically possible, appropriately supported, financially feasible, and results in the highest value.
  • Vacant Possession: A property condition where the property is empty, unoccupied, and available to be sold or leased without any tenants or personal belongings.

Online References

Suggested Books for Further Studies

  • “Real Estate Valuation Theory” by Ko Wang and Marvin L. Wolverton
  • “Property Valuation Techniques” by David Isaac and John O’Leary
  • “International Valuation Standards: A Guide to the Valuation of Real Property Assets” by David Parker

Accounting Basics: “Existing Use Value (EUV)” Fundamentals Quiz

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