fair market value

The market value of a property refers to the current value of the building, taking into account its age, condition, and any depreciation that has occurred-in other words, the physical value of the structures as of the current valuation date. It is a component of the asset value method under the ImmoWertV and describes what the building is worth today as a physical asset, assuming new construction and deducting the value loss due to age and condition (age-related depreciation). The current market value is not to be equated with the market value (market price), which also takes location and market trends into account.

Calculation of the current market value in the asset value method

In the asset value method, the current market value of the building is determined in three steps: First, the construction costs (standard construction costs according to NHK) of the building are calculated in today’s prices. Then, the depreciation due to age is deducted-typically on a straight-line basis over the total economic useful life (e.g., 80 years for a single-family home). The result is the current market value of the building structures.

Added to this is the land value (from the standard land value map)-together, this yields the preliminary asset value, which is then adjusted to the regional price level using a market adjustment factor. The market adjustment factor is a crucial variable here: In high-demand locations, it can exceed 1.5 (meaning the market pays 50% more than the pure property value), or in structurally weak locations, it can be below 0.8 (the market pays less than the property value).

In practice, the depreciation due to age is not always applied strictly on a straight-line basis. For well-maintained, modernized buildings, the effective remaining useful life-and thus the fair market value-can be adjusted upward based on an expert assessment. A 50-year-old house that has been completely renovated can have an effective remaining useful life similar to that of a 20-year-old property-with a correspondingly higher fair market value.

Fair Market Value vs. Market Value: Key Differences

Fair market value is a property-specific, technical measure; market value (market value pursuant to Section 194 of the German Building Code) is a market-based measure that incorporates supply, demand, location, and comparable prices. In sought-after locations such as Nuremberg’s downtown neighborhoods, the market value can significantly exceed the current market value-because the land accounts for a large portion of the value and the market adjustment factor is high.

In structurally weak locations, the market value may fall below the current market value if there is hardly any demand for the building itself. This is a well-known phenomenon in shrinking regions: The asset value method calculates theoretical construction costs that cannot be realized on the market, however, because hardly anyone wants to buy the property. In such cases, the income approach or a heavily discounted asset value method with a very low market adjustment factor prevails.

Implications for Insurance and Taxes

Current market value also plays a role in building insurance: Older properties are often compensated at current market value in the event of a claim, while new buildings and insured properties with a replacement cost clause are covered at replacement cost (new value). Anyone who has insured an older building only at current market value bears the difference between the current market value and the actual restoration costs themselves in the event of damage-a risk that is often underestimated.

In tax law, current market value is relevant for the valuation of buildings under inheritance and gift tax law, insofar as the tax authorities’ cost approach is applied. The Valuation Act (BewG) prescribes specific methods for inheritance tax purposes that are based on the asset value or income value methods-with their own standard values that may differ from market value.

Practical Tip for Property Owners in Nuremberg and Franconia

Especially in Nuremberg and Franconia, where many Wilhelminian-style and post-war buildings characterize the real estate landscape, the fair market value often deviates significantly from the market value. Older buildings with original charm and a good location command market prices that far exceed those determined by the purely technical asset-based valuation method. Conversely, properties in need of renovation in outlying locations may achieve market values significantly below the calculated fair market value.

We provide a market-based valuation for your property that combines current market value, standard land values, and current market trends to give you a realistic price estimate for buying or selling. We use current standard land values from the Nuremberg and Fürth Appraisal Committees as well as market data from recent purchase price databases.

Frequently Asked Questions

What useful life is assumed for calculating the current market value?

The total economic useful life depends on the type of building: single-family homes and multi-family homes are generally assumed to have a useful life of 80 years, while office and commercial buildings are assumed to have a useful life of 60 to 70 years. For modernized buildings, the effective remaining useful life may be adjusted upward based on an expert assessment-which correspondingly increases the fair market value. The adjustment is based on the scope and age of the modernization measures carried out.

Is the current market value relevant for pricing during a sale?

The current market value is unsuitable as the sole basis for the sales price because it does not reflect the market. However, it is an important starting point for the asset value method, which is used as a valuation approach alongside the sales comparison approach, particularly for owner-occupied single-family homes. In Nuremberg, the sales comparison approach is preferred due to the good data available from the Appraisal Committee-the fair market value then serves as a plausibility check.

How does fair market value differ from book value?

Book value is an accounting figure (acquisition or construction costs minus tax depreciation according to the depreciation schedule) and has little to do with the actual physical condition of the building or its market value. Fair market value is a technical estimate derived from the valuation process that takes into account the actual condition of the building. In practice, book value and fair market value are rarely identical-depending on the depreciation rate and the actual state of repair, they can differ significantly from one another.

When is fair market value most commonly used in practice?

The fair market value is primarily used for owner-occupied single-family homes (asset-based approach), in building insurance (as the basis for calculating compensation), in inheritance and gift tax law (under the Valuation Act), and in the technical due diligence of commercial real estate (cost estimates for maintenance and replacement). In rental housing and commercial real estate with stable income, the income approach dominates.

Back to the Real Estate Glossary.