Property is for sale for $100,000.
The homeowner is willing to spend $100,000 to purchase the home and is primarily concerned with the improvement. The condo developer is willing to spend $100,000 to purchase the development rights but will demolish the improvement.
- Homeowner "Wow! What a neat old house, like grandma's home. I want it."
- Condo Developer "Great development site! Plow the house into the ditch and build 15 units. I want it."
Use is Mutually Exclusive
According to the Whole Equals the Sum of the Parts theory, the value should be $200,000, but, because one use of the property excludes another use, the value is $100,000, i.e. you can't live in the house and build the condo.