When it comes to the legal world, appreciation has a more specific definition than its everyday English counterpart. Appreciation is a word that describes the perception of value or a gain in worth. In legal and business contexts, appreciation can pertain to property, currency, stocks, and other forms of value.
For example, if an investor purchased stocks at a certain price point and then later sold them for a higher amount, they have experienced appreciation. Currency can appreciate in value if a country’s economy strengthens, allowing the country’s currency to be exchanged at a higher rate.
Real Estate Appreciation
Appreciation is especially relevant in real estate investments. When analyzing a real estate investment opportunity, it’s important to consider the potential for appreciation. Appreciation is most commonly caused by external influences, such as an influx of new businesses and development projects in an area, improved infrastructure, and increased demand due to population growth.
Changes in the market can also cause real estate appreciation, such as an increase in rental income and home sales prices, or an improved mortgage environment with low interest rates. Appreciation can also be driven by internal factors, such as when a homeowner makes renovations or improvements that add value to their property.
Estate Appreciation
Appreciation can also impact an estate, such as when items are liquidated or sold at auction, or when the account balance of an estate’s trusts and assets are worth more than when the deceased person left them. Appreciation impacts how much beneficiaries receive when an estate is settled.
The Bottom Line
Appreciation in a legal and business context deals with perception of value or gain in worth. It’s important to understand the concept of appreciation in order to make informed decisions with investments such as real estate and estates. It can also be helpful when analyzing any type of asset or asset class for potential gains.