Rental value is the

fair market value The fair market value of property is the price at which it would change hands between a willing and informed buyer and seller. The term is used throughout the Internal Revenue Code, as well as in bankruptcy laws, in many state laws, and by sever ...

property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...

while

rent Rent may refer to: Economics *Renting, an agreement where a payment is made for the temporary use of a good, service or property *Economic rent, any payment in excess of the cost of production *Rent-seeking, attempting to increase one's share of e ...

ed out in a

lease A lease is a contractual arrangement calling for the user (referred to as the ''lessee'') to pay the owner (referred to as the ''lessor'') for the use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial ...

. More generally, it may be the consideration paid under the lease for the right to occupy, or the royalties or

return Return may refer to: In business, economics, and finance * Return on investment (ROI), the financial gain after an expense. * Rate of return, the financial term for the profit or loss derived from an investment * Tax return, a blank document or t ...

received by a

lessor Lessor may refer to: * Lessor (leasing), the owner of leased property or the agent authorized on the owner's behalf * Lessor, Wisconsin, a town in U.S.A. * Lessor Township, Minnesota, U.S.A. See also * Lesser {{disambig, geo ...

(

landlord A landlord is the owner of a house, apartment, condominium, land, or real estate which is rented or leased to an individual or business, who is called a tenant (also a ''lessee'' or ''renter''). When a juristic person is in this position, t ...

) under a license to real property. In the science and art of appraisal, it is the amount that would be paid for

rental Renting, also known as hiring or letting, 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 a ...

of similar real property in the same condition and in the same area. Determining Rental Rates Deciding on a rental rate doesn’t just mean figuring out the highest possible price you could list your rental for. Increasing the rental rate to the top of the market, can also increase the number of calls or issues a tenant may complain about during the term of the lease. e.g. If you’re paying top dollar for something, you expect an exceptional experience. If you pay a below market rent, you are likely to not complain about smaller issues since you’re paying less. Pricing your rental should be a strategy in order to maximize your net income. The longer you own the property, the easier this becomes.

Other Definitions

economic An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the ...

terms, the rental value is the added value 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 (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, cop ...

. The value arises from when the

market Market is a term used to describe concepts such as: *Market (economics), system in which parties engage in transactions according to supply and demand *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an ...

model A model is an informative representation of an object, person or system. The term originally denoted the plans of a building in late 16th-century English, and derived via French and Italian ultimately from Latin ''modulus'', a measure. Models c ...

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 A consumer is a person or a group who intends to order, or uses purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...

achieves a surplus or profit when buying goods if they are able to buy all quantities at a single price. The producer lacks knowledge concerning the relationship between an individual’s

willingness-to-pay In behavioral economics, willingness to pay (WTP) is the maximum price at or below which a consumer will definitely buy one unit of a product.Varian, Hal R. (1992), Microeconomic Analysis, Vol. 3. New York: W.W. Norton. This corresponds to the s ...

and quantity. This means the producer cannot

price discriminate Price discrimination is a microeconomic pricing strategy where identical or largely similar goods or services are sold at different prices by the same provider in different markets. Price discrimination is distinguished from product different ...

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

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 In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ot ...

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 economics, economic equilibrium is a situation in which economic forces such as supply and demand are balanced and in the absence of external influences the ( equilibrium) values of economic variables will not change. For example, in the st ...

. In a

contract law A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...

suit, the lessor could collect the ''rental value'' of the

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 ''pr ...

from the saloon

lessee A lease is a contractual arrangement calling for the user (referred to as the ''lessee'') to pay the owner (referred to as the ''lessor'') for the use of an asset. Property, buildings and vehicles are common assets that are leased. Industria ...

( 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.''Reisert c. City of New York'', 66 N.E. 731, 174 N.Y. 196 (year?). Rental value can also be used in a

divorce Divorce (also known as dissolution of marriage) is the process of terminating a marriage or marital union. Divorce usually entails the canceling or reorganizing of the legal duties and responsibilities of marriage, thus dissolving the ...

, separation, or

annulment Annulment is a legal procedure within secular and religious legal systems 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 al ...

action for

equitable distribution Division of property, also known as equitable distribution, is a judicial division of property rights and obligations between spouses during divorce. It may be done by agreement, through a property settlement, or by judicial decree. Distributio ...

, in those states ''lacking'' Community property laws.

Fair market rent in the US

''Fair Market Rent'' in the US context is the amount of money that a given property would command, if it were open for leasing at the moment. Fair market rent is an important concept both in the

Housing and Urban Development The United States Department of Housing and Urban Development (HUD) is one of the executive departments of the U.S. federal government. It administers federal housing and urban development laws. It is headed by the Secretary of Housing and Ur ...

's ability to determine how much of the rent is covered by the government for those tenants who are part of Section 8, as well as by other governmental institutions.HUD USER – Datasets: Fair Market Rents
/ref> Fair market rent is sometimes used by appraisal districts to determine tax rates. 1996.08.05 DAB1594 Putnam-Clay-Flagler Economic Opportunity Council, Inc
/ref> U.S. HUD's Office of Policy Development and Research (PD&R) publishes Fair Market Rents and Income Limits (respectively, the basis for how much program administrators will subsidize housing units, and the maximum incomes that tenants may not exceed in order to qualify for subsidized housing) on an annual basis. These figures vary throughout the country based on a number of determining factors, such as local economic conditions and housing demand.

References

{{Real estate Real estate valuation Real property law Renting