VALUATION OF ASSETS 45 



who exchange property, as to the probable future income. 

 Inflated ideas of future income, if commonly accepted, result in 

 inflated sale values, as instanced in real estate booms, high 

 values for western fruit lands and flurries in mining stocks. 

 Could sound, reliable information regarding the possible future 

 income from property be a matter of common knowledge, 

 inflation of values would become very difficult. Occasionally, 

 by rapid development of a region, values which at first seemed 

 high materialize by the assurance of income resulting from 

 this increase in population. More often the boom is overdone, 

 and sooner or later, values collapse to a level corresponding to 

 the measure of income possible. In every case the sale value is 

 a crude attempt at approximating capital value, and the disa- 

 greement between them is due to ignorance of the investing 

 public as to the true present value of the possible income. 



70. Effect of Capital Value upon Appraised Value. The 

 appraiser must therefore take into account the actual sources 

 of value in appraising property in order to check the sale value 

 and detect any glaring discrepancies between the reasonable 

 capital value of the net income and the price asked for the 

 property. If the owners of wood lots are selling their timber at 

 one-half to one-third of its real value, because they are ignorant 

 of both the quantity of standing timber they possess and the 

 current prices for stumpage, or if these current prices mani- 

 festly are so low that the purchaser is able to make a very large 

 profit, the appraiser can go back of sale values and determine 

 the value of such stumpage directly from income ( 61). Where 

 no sale values exist, the determination of capital value is his 

 only recourse and is fully satisfactory. 



71. Inflation of Capital Values. Value thus depends upon 

 future income which may never materialize. On the chances 

 of obtaining this income, investors are willing to purchase prop- 

 erty at values computed by discounting these chances. The 

 rate of income earned on the past cost or invested capital of the 

 owner does not fix the price of the property. The amount and 

 value of this income are the determining factors. The price is 

 determined by discounting this value, using a rate of interest 



