Market Value
The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.
Market value is the central concept in real estate appraisal and is defined by federal regulation (12 CFR 34.42). The definition requires several implicit conditions: both parties are well-informed and acting in their own best interests, a reasonable time is allowed for exposure in the open market, payment is in cash or equivalent financial terms, and the price is not influenced by special financing or concessions. Market value is distinguished from market price (what a property actually sold for) and investment value (value to a specific investor). Most federally related appraisals are required to estimate market value.
Related Terms
Sales Comparison Approach
A valuation method that estimates a property's value by comparing it to similar properties that have recently sold in the same market area.
Reconciliation
The process by which an appraiser evaluates and weighs the results from the different valuation approaches (sales comparison, cost, and income) to arrive at a final opinion of value..
Highest and Best Use
HBUThe reasonably probable use of a property that results in the highest value, considering uses that are legally permissible, physically possible, financially feasible, and maximally productive..
Exposure Time
The estimated length of time a property would have been offered on the market before a hypothetical sale at the appraised value on the effective date.
Arm's Length Transaction
A transaction between unrelated parties who are each acting in their own self-interest, where neither party is under duress or undue influence.
More in Valuation Approaches
View allCost Approach
A valuation method that estimates value by calculating the cost to reproduce or replace the improvements, subtracting accrued depreciation, and adding the land value.
Income Approach
A valuation method that estimates a property's value based on the income it generates or is expected to generate.
Comparable Sale
A recently sold property that is similar to the subject property in terms of location, size, condition, and features, used as evidence to support the appraiser's opinion of value in the sales comparison approach..
Adjustment
A dollar or percentage modification applied to a comparable sale's price to account for differences between the comparable and the subject property.