Real Estate Council of Alberta Fundamentals Practice Exam

Which value type is primarily used for taxation purposes?

1. Assessed value

2. Investment value

3. Insurable value

4. Operational value

The correct answer is: Assessed value

The assessed value is the most appropriate value type used primarily for taxation purposes. This value represents the estimation of a property's worth as determined by the local government or tax authority. It is used to establish the property tax rate and calculate the amount of tax owed by the property owner. Assessed value is typically lower than market value because it factors in aspects such as exemptions and local tax regulations. The assessment process includes considering recent sales of comparable properties and the overall characteristics of the property in question. Thus, this value plays a critical role in the financing of local services and infrastructure through property taxes. In contrast, investment value pertains to the worth of a property based on its potential to generate income, which is of primary interest to investors rather than tax authorities. Insurable value relates to the amount required to repair or rebuild a property in the event of a loss, which is crucial for insurance purposes but not directly tied to taxation. Operational value focuses on a property's worth in terms of its income-generating ability under specific management or operational conditions, which can be relevant for business evaluations but again isn't primarily about taxation.