What are down valuations?
A down valuation is a reduction of an asset’s value within a given market; one example is a reduction in a home’s value.
A down valuation is an adjustment to the list price of a home that minimizes a company’s or individual’s tax liability. This was historically called a depreciation or a fictitious loss.
- A well-to-do individual or corporation plans to buy a corporate jet but needs to delay the purchase. A down valuation is a way for the individual to save money tax-wise by declining the purchase immediately, thus making the aircraft available for sale to someone else.
- In a real estate transaction, a seller, such as an individual, looking to sell his or her home can suffer a loss if the homeowner must navigate an unstable property market. The seller can sell their home for a lower value to offset this loss in equity.
- In the late 2000s, new regulations to decrease the number of unhealthy mortgages that Fannie Mae and Freddie Mac bought in the secondary mortgage market decreased the value of these investments. Fannie Mae and Freddie Mac’s market valuation was down by around $10 billion for each 0.5% excess of regulation.
- Although the primary property is exempt from taxation, the values of other properties in the chain could go down if the primary property’s value goes down which, in this example, is the other properties in the chain.
- There are a wide variety of reasons a home’s valuation may vary. Intrinsic quality, time, change in market, etc. are just a few factors that could alter the worth.