Market Value

The market value of a piece of property is “the highest estimated price that a buyer would pay and a seller would accept for an item in an open and competitive market” (Textbook). Therefore, for market value to exist there must be a viable market. “In a market value appraisal, an appraiser should apply the definition of market value to every comparable sale to see if the sale price in that transaction represents the market value of that property”(Textbook). There are many conditions an appraiser must consider to determine the market value of a property. “These conditions generally fall into three categories: The relationship, knowledge and motivation of the parties, the terms of the sale, and the condition of the sale” (Market Value Definitions).

Are the buyer and seller related? Is the buyer well-informed of the assets worth? Does the seller have underlying motivations to sell? These are questions appraisers must answer in determining a properties fair market value because these conditions affect the sale price of the property. To determine fair market value it is important “neither buyer or seller are under pressure to act (such as career relocation, death of a family member, divorce, etc.)” (Market Value).

Fair market value is also determined by the terms of the sale and the financial arrangements agreed upon. Some buyers may choose to purchase the property with cash, while other buyers may need financing. Some buyers may choose to obtain money through a lender and others may obtain financing from the seller. The seller may then hold a note on the property. The purchase price may be higher in this situation and lower when cash is offered. Appraisers need to be informed of the financing terms in order to evaluate the market value.

“The condition of sale is the exposure in a competitive market for a reasonable time prior to sale” (Market Value Definitions). The length of time it takes to sell a property, the properties location, the type of real estate market (i.e. buyers/sellers market), and the current condition of the property all assist in determining the condition of the sale. An appraiser must assess these items while determining the true market value.

As you can see there are many factors and conditions that help determine market value. Because real estate markets are fairly imperfect, appraisers as experts are particularly important in reporting their opinion of the fair market value.

References

Market Value. http://www.orps.state.ny.us/pamphlet/mv_estimates.htm

Market Value Definitions In The U.S. http://www.sdaao.org/website/permanent%20info/What%20is%20a%20Real%20Estate%20Appraisal%20and%20how%20is%20it%20Done.pdf

Textbook. The Student Handbook to The Appraisal of Real Estate, 13^th Edition.