Placepoint

Bruksverdi

Bruksverdi (use value) is the value of a property assessed on the basis of its actual current use, not on the basis of the property's optimal alternative use. The term is used in particular in expropriation cases and for agricultural and forestry property under the Concession Act. Bruksverdi contrasts with market value, which is the highest probable amount a buyer in an open market will pay, and which typically reflects the best alternative use.

The legal basis for bruksverdi as a valuation principle varies with the purpose. In expropriation, the Expropriation Act governs the right to and the process for compulsory acquisition, while the calculation of compensation itself follows the Expropriation Compensation Act (1984). The general rule is that the expropriated party shall receive "full compensation" under Article 105 of the Constitution. Full compensation is calculated as the highest of sale value (market value), bruksverdi or replacement value. The expropriated party therefore does not choose: the statutory calculation picks the highest of the three. Bruksverdi becomes decisive only when the sale value is low, and then acts as a floor that protects the owner from being left without a real value basis for the current use.

For agriculture, bruksverdi is also used as a valuation principle for acquisitions that require a concession under section 9 a of the Concession Act. The provision states that the price assessment for the acquisition of agricultural property shall start from the yield value of the farming operation, not pure market value. This is meant to prevent agricultural property being sold at prices that bear no reasonable relation to the operating basis, and it is one of the reasons why agricultural properties in many areas change hands at lower levels than the housing market would suggest for the same plot. Residential valuation of holiday homes subject to a concession uses similar principles when the municipality decides whether the purchase price is within what the law accepts.

Bruksverdi is most often calculated as a capitalised present value of the income from current use. For farming operations, net income from land, forest and buildings is calculated and capitalised with a capitalisation rate adjusted to the risk in agriculture (typically 4% to 5% as a reference). For expropriation purposes, the court uses appraisal assessment, where bruksverdi is estimated from documented income and actual costs, possibly supplemented by comparable operating accounts. Yield figures come from farm accounts, the agricultural statistics of SSB and the farm business surveys of NIBIO.

The difference from market value is simple in principle: market value assumes "best alternative use", while bruksverdi assumes "current use". For a farm plot on the edge of a built-up area, the market value will typically reflect development potential and be far higher than the bruksverdi as a farming operation. If the municipality expropriates for road purposes, compensation is set at the higher of the two (together with the replacement value). If the municipality assesses a concession application for an agricultural property, the bruksverdi is used as the upper limit for what the municipality can accept as a purchase price.

Other valuation terms should also be kept apart. Tax assessment value is the value calculated by the Norwegian Tax Administration for tax purposes and typically sits well below both bruksverdi and market value. A survey valuation is the assessment made by a specific surveyor and can reflect either bruksverdi or market value, depending on the assignment. Valuation is a general term used for all of these, and it requires you to specify which principle underlies it.

From the Placepoint dictionary: Bruksverdi

More information: Lovdata: Konsesjonsloven, Lovdata: Oreigningslova, Store norske leksikon: bruksverdi

English: Use value (value in current use, as distinct from market value; relevant for expropriation and agriculture).

Common questions we come across

What is the difference between bruksverdi and market value?

Bruksverdi is the value in actual current use; market value is what the property can achieve in an open sale, where the best alternative use counts. For an agricultural property near a town, the difference is often large.

When is bruksverdi used?

In expropriation (as a floor for compensation, together with market value and replacement value) and in concession assessments for agricultural property under section 9 of the Concession Act.

How is bruksverdi calculated?

As the capitalised present value of the net income from current use, typically based on documented income and costs and a capitalisation rate adjusted to the risk in the use in question.

What is full compensation in expropriation?

The highest of sale value (market value), bruksverdi or replacement value. This is a statutory rule under Article 105 of the Constitution and the Expropriation Compensation Act; the expropriated party does not choose.

Why is agricultural property often cheaper than the housing market would suggest?

Section 9 of the Concession Act limits the purchase price the municipality can accept for an acquisition that requires a concession, based on the yield value of the farming operation. That keeps prices down compared with pure market value.