Rental value
Encyclopedia
Rental value is the fair market value
of property
while rent
ed out in a lease
. More generally, it may be the consideration
paid under the lease for the right to occupy, or the royalties
or return
received by a lessor
(landlord
) under a license to real property
. In the science and art of appraisal
, it is the amount that would be paid for rental of similar real property in the same condition and in the same area.
an individual contributes when goods are being exchanged or traded for profit. This additional quality is often fixed and is alone under the trader’s ownership. The characteristic can be tangible such as a signature method of use or intangible such as exclusive knowledge pertaining to a product; also known as intellectual property
. The value arises from when the market
or model is in equilibrium
and it is advantages for an individual to take part in trading activities rather than not participate, considering profit or utility can be achieved. Two separate but ideally identical exchange scenarios may occur but may have completely different values calculated. This is explained by two classic examples, a consumer
achieves a surplus
or profit when buying goods if they are able to buy all quantities at a single price. The produces lacks knowledge concerning the relationship between an individual’s willingness-to-pay and quantity. This means the produces cannot price discriminate according to the consumer’s demand marginality. In this example the buyer has achieved a beneficial rent. If the seller were to discover the buyers willingness-to-pay at different quantities, the seller could maximize their profit by selling quantities at different prices. In most situations this is achieved by slightly lowering the price as more products are bought. In this example the seller achieves a beneficial rent. Economic theories suggest that a free market
would correct itself of rents. Considering the producer surplus example, if the gradual discounting of prices also attracted more consumers, the producer would have to re-evaluate their strategy. Often, consumers have different willingness’-to-pay for goods. Following this assumption, profit would not be maximized because the price strategy would not be applicable to all buyers. However if analyzed in reality, through means such as market research, the producer can find a willingness-to-pay that represents most buyers. Consumer rent from the individuals who still pay for goods lower than willing and the producer rent from ability to price discriminate would then counter one another, resulting in market equilibrium
.
In a contract lawsuit, the lessor could collect the rental value of the premises
from the saloon
lessee {tenant
) who had violated a lease. Usable value is not the same as rental value, but is equivalent, and has been used in a condemnation
proceeding.
Rental value can also be used in a divorce
, separation
, or annulment
action for equitable distribution, in those states lacking Community property
laws.
Fair market value
Fair market value is an estimate of the market value of a property, based on what a knowledgeable, willing, and unpressured buyer would probably pay to a knowledgeable, willing, and unpressured seller in the market. An estimate of fair market value may be founded either on precedent or...
of property
Property
Property is any physical or intangible entity that is owned by a person or jointly by a group of people or a legal entity like a corporation...
while rent
Renting
Renting is an agreement where a payment is made for the temporary use of a good, service or property owned by another. A gross lease is when the tenant pays a flat rental amount and the landlord pays for all property charges regularly incurred by the ownership from landowners...
ed out in a lease
Lease
A lease is a contractual arrangement calling for the lessee to pay the lessor for use of an asset. A rental agreement is a lease in which the asset is tangible property...
. More generally, it may be the consideration
Consideration
Consideration is the central concept in the common law of contracts and is required, in most cases, for a contract to be enforceable. Consideration is the price one pays for another's promise. It can take a number of forms: money, property, a promise, the doing of an act, or even refraining from...
paid under the lease for the right to occupy, or the royalties
Royalties
Royalties are usage-based payments made by one party to another for the right to ongoing use of an asset, sometimes an intellectual property...
or return
Return
-In business, economics, and finance:* Rate of return, the financial term for the profit or loss derived from an investment* Tax return , various meanings relating to taxation...
received by a lessor
Lessor
Lessor is the name of two places in the United States:*Lessor, Wisconsin*Lessor Township, Minnesota...
(landlord
Landlord
A landlord is the owner of a house, apartment, condominium, or real estate which is rented or leased to an individual or business, who is called a tenant . When a juristic person is in this position, the term landlord is used. Other terms include lessor and owner...
) under a license to real property
Real property
In English Common Law, real property, real estate, realty, or immovable property is any subset of land that has been legally defined and the improvements to it made by human efforts: any buildings, machinery, wells, dams, ponds, mines, canals, roads, various property rights, and so forth...
. In the science and art of appraisal
Real estate appraisal
Real estate appraisal, property valuation or land valuation is the process of valuing real property. The value usually sought is the property's Market Value. Appraisals are needed because compared to, say, corporate stock, real estate transactions occur very infrequently...
, it is the amount that would be paid for rental of similar real property in the same condition and in the same area.
Other Definitions
In economic terms, the rental value is the added valueAdded value
Added value in financial analysis of shares is to be distinguished from value added. Used as a measure of shareholder value, calculated using the formula:...
an individual contributes when goods are being exchanged or traded for profit. This additional quality is often fixed and is alone under the trader’s ownership. The characteristic can be tangible such as a signature method of use or intangible such as exclusive knowledge pertaining to a product; also known as intellectual property
Intellectual property
Intellectual property is a term referring to a number of distinct types of creations of the mind for which a set of exclusive rights are recognized—and the corresponding fields of law...
. The value arises from when the market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...
or model is in equilibrium
Economic equilibrium
In economics, economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the values of economic variables will not change. It is the point at which quantity demanded and quantity supplied are equal...
and it is advantages for an individual to take part in trading activities rather than not participate, considering profit or utility can be achieved. Two separate but ideally identical exchange scenarios may occur but may have completely different values calculated. This is explained by two classic examples, a consumer
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...
achieves a surplus
Surplus
Surplus means when there is more supply than demand, as in extra resources.Surplus may refer to: dumd* "The Surplus", an episode of The Office* Surplus: Terrorized into Being Consumers, a documentary film...
or profit when buying goods if they are able to buy all quantities at a single price. The produces lacks knowledge concerning the relationship between an individual’s willingness-to-pay and quantity. This means the produces cannot price discriminate according to the consumer’s demand marginality. In this example the buyer has achieved a beneficial rent. If the seller were to discover the buyers willingness-to-pay at different quantities, the seller could maximize their profit by selling quantities at different prices. In most situations this is achieved by slightly lowering the price as more products are bought. In this example the seller achieves a beneficial rent. Economic theories suggest that a free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
would correct itself of rents. Considering the producer surplus example, if the gradual discounting of prices also attracted more consumers, the producer would have to re-evaluate their strategy. Often, consumers have different willingness’-to-pay for goods. Following this assumption, profit would not be maximized because the price strategy would not be applicable to all buyers. However if analyzed in reality, through means such as market research, the producer can find a willingness-to-pay that represents most buyers. Consumer rent from the individuals who still pay for goods lower than willing and the producer rent from ability to price discriminate would then counter one another, resulting in market equilibrium
Economic equilibrium
In economics, economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the values of economic variables will not change. It is the point at which quantity demanded and quantity supplied are equal...
.
In a contract lawsuit, the lessor could collect the rental value of the premises
Premises
Premises are land and buildings together considered as a property. This usage arose from property owners finding the word in their title deeds, where it originally correctly meant "the aforementioned; what this document is about", from Latin prae-missus = "placed before".In this sense, the word is...
from the saloon
Saloon
Saloon may refer to:* Saloon , a style of car body.* Saloon , a musical group.* Western saloon, a historical style of American bar.* Bar , a venue for alcoholic beverage consumption....
lessee {tenant
Leasehold estate
A leasehold estate is an ownership of a temporary right to land or property in which a lessee or a tenant holds rights of real property by some form of title from a lessor or landlord....
) who had violated a lease. Usable value is not the same as rental value, but is equivalent, and has been used in a condemnation
Eminent domain
Eminent domain , compulsory purchase , resumption/compulsory acquisition , or expropriation is an action of the state to seize a citizen's private property, expropriate property, or seize a citizen's rights in property with due monetary compensation, but without the owner's consent...
proceeding.
Rental value can also be used in a divorce
Divorce
Divorce is the final termination of a marital union, canceling the legal duties and responsibilities of marriage and dissolving the bonds of matrimony between the parties...
, separation
Legal separation
Legal separation is a legal process by which a married couple may formalize a de facto separation while remaining legally married. A legal separation is granted in the form of a court order, which can be in the form of a legally binding consent decree...
, or annulment
Annulment
Annulment is a legal procedure for declaring a marriage null and void. Unlike divorce, it is usually retroactive, meaning that an annulled marriage is considered to be invalid from the beginning almost as if it had never taken place...
action for equitable distribution, in those states lacking Community property
Community property
Community property is a marital property regime that originated in civil law jurisdictions and is now also found in some common law jurisdictions...
laws.
See also
- Economic RentEconomic rentEconomic rent is typically defined by economists as payment for goods and services beyond the amount needed to bring the required factors of production into a production process and sustain supply. A recipient of economic rent is a rentier....
- Capitalization rateCapitalization rateCapitalization rate is the ratio between the net operating income produced by an asset and its capital cost or alternatively its current market value...
- Fair market valueFair market valueFair market value is an estimate of the market value of a property, based on what a knowledgeable, willing, and unpressured buyer would probably pay to a knowledgeable, willing, and unpressured seller in the market. An estimate of fair market value may be founded either on precedent or...
- Gross OutputGross OutputGross output is an economic concept used in national accounts such as the United Nations System of National Accounts and the US National Income and Product Accounts...
- Gross Rent MultiplierGross Rent MultiplierGross Rent Multiplier or "GRM" is the ratio of the price of a real estate investment to its annual rental income before expenses:Gross Rent Multiplier = Sale Price / Potential Gross Income...
- MesneMesneMesne , middle or intermediate, an adjective used in several legal phrases....
- Minimum lease paymentsMinimum lease paymentsRental payments over the lease term including the amount of any bargain purchase option, premium and any guaranteed residual value and excluding any rental relating to costs to be met by the lessor and any contingent rentals....
- Operating surplusOperating surplusOperating surplus is an accounting concept used in national accounts statistics Operating surplus is an accounting concept used in national accounts statistics Operating surplus is an accounting concept used in national accounts statistics (such as United Nations System of National Accounts (UNSNA)...
- Present value
- Real estate appraisalReal estate appraisalReal estate appraisal, property valuation or land valuation is the process of valuing real property. The value usually sought is the property's Market Value. Appraisals are needed because compared to, say, corporate stock, real estate transactions occur very infrequently...