The Basis of Value and the Approach

Version 1.2.0 (7 October 2026): corrections and clarifications; see the Journal's errata page (journal.valuation-engineer.com/index.php/vej/errata). Pages 129-136 of Vol. 1 No. 2 (formerly 120-126). Version 1.1.0 (5 October 2026): the cross-reference to The Purposes of Valuation (012) restated — the purpose constrains the basis, and the governing law often prescribes it. Pages 120–126 of Vol. 1 No. 2, unchanged. Repaginated 5 October 2026: content unchanged; pages 120-126 of Vol. 1 No. 2 (formerly 115-121), following the version 1.1.0 corrections to the Foundations entries 000 and 007–010.A basis of value is the definition of value an assignment must produce: which value, defined how, and for whom. It is routinely confused with two other things. A premise of value is the assumed transactional circumstance -- open market, bulk sale, orderly liquidation, forced sale, continued use. An approach is a technique for producing a figure once basis and premise are fixed. This entry separates the three, and shows that the separation is not pedantry: each approach supports a range of bases, the ranges differ, and no approach determines the basis of the number it returns. The confusion is carried by a label. "Indicated Value by the Income Approach" names the technique and omits the one thing that fixes what the number means; the same column under different assumptions is an indication of investment value, and nothing on the page distinguishes them. In the cost approach the shorthand does worse, joining two of the three terms the discipline exists to keep apart: cost is what was spent, price is what was paid, value is an opinion about what would be paid under defined conditions. The entry sets out which bases each approach can support and under what condition -- sales comparison the most tightly bound, the income approach the widest, cost between them -- and explains why the ranges differ: an approach's range tracks how much of its input comes from observed market behaviour and how much from the assignment definition. The corollary is evidentiary. The further the inputs come from the assignment rather than the market, the more the stated basis rests on the appraiser's assertion, and the more there is to contest. Subdivision analysis is treated as the sharpest case, a residual discounted cash flow whose worksheet is covered in cost figures. The same holds in the statistical setting. Fit a hedonic model on arm's-length open-market transactions and it estimates market value; fit the identical functional form on distressed sales and it estimates something else, with no visible change to the equation, the diagnostics or the reported fit statistic. The approach did not change. The basis changed, silently, and nothing in the output records it. The worked example carries one parcel through two assignments on the same date, both answered by sales comparison from the same three comparables: a lender's instruction and an expropriation under a statute that disregards the effect of the scheme on value. The figures differ by twelve percent, and no arithmetic error, hidden adjustment or change of approach or premise separates them.