Real Estate Blog

Market Value
February 10th, 2012 11:15 AM

Current market value is what most homeowners, real estate agents, and financial institutions are looking for when they request an appraisal. The most common definition of market value is:

"The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests(arm’s length transaction); a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."

So by definition, market value is set by the buyer and the seller agreeing on a price, not the appraiser, homeowner or Realtor. If we look back just a few years ago when the market was booming, buyers were submitting contracts for greater than the list price. The buyer set the market. It is happening in this market as well. The buyers have a lot of inventory to choose from and all types. The buyer is deciding what price they want to pay for a particular property. The trick to selling a home quickly is to find the most probable price the home will sell for based on the current competition and the most recent sales.

If a market has numerous short sales, foreclosures, estate sales, or motivated sellers, the buyer may see a stigma to these properties and are expecting a ‘deal’. They are typically going to offer a low price for the property. It is up to the motivation of the seller to agree to the price. If the house isn’t selling then typically the seller gives into the buyer. The buyer is still setting market price.

When market value is requested for an appraisal assignment, the appraiser uses recent sales from the market that are the most comparable to the subject. These sale prices were determined by the buyer at the time of the sale.

I have read several articles lately that are blaming the appraiser for keeping market values down or deals falling through. I am writing this blog to show that it isn’t the appraiser that is setting market value. We are just the messenger. If due diligence is done in each real estate transaction, there should not be any surprises if a deal falls through because the appraisal did not come in where expected. In the Hampton Roads market there are some areas that are tough to find recent comparable sales. Don’t be afraid to ask for help to find the value of a property. It can be an experienced Broker or a licensed appraiser. Wouldn’t it be more comforting knowing the market value of a property than guessing and being disappointed down the road?

Posted in:General
Posted by Betsy Hughes, SRA, AI-RRS on February 10th, 2012 11:15 AMPost a Comment

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What part does government mandates and policies play in market value? If we look back just a few years ago when the market was booming, lowered lending standards allowed vulnerable buyers to qualify for high-risk loans that have resulted in foreclosures and short sales.

Posted by Becky Buck on February 10th, 2012 11:16 PM
Government mandates did not nor do not set the sale or list prices of properties. It is a decision made by the buyers and sellers in the market.

Posted by Betsy on February 11th, 2012 12:14 PM


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