Market Value

Market Value and Principles of Value ## Defining Market Value Market value is the foundational concept behind every appraisal, CMA, and listing price discussion in real estate. It is defined as the most probable price a property would sell for under all of the following conditions: - The buyer and seller are typically motivated — neither is under duress, and neither is a distressed seller or speculative buyer - Both parties are well informed about the property and the market - The property has been exposed to the open market for a reasonable time - Payment is made in cash or its equivalent (typical financing terms) - The price is unaffected by special or creative financing or concessions not typical in the market - The transaction is an arm's-length transaction — the parties are unrelated and acting independently Market value is what a property *should* sell for under normal conditions — it is an estimate, not a guarantee. --- ## Market Value vs. Related Concepts Understanding the distinctions between related value concepts is heavily tested on the California exam. ### Market Value vs. Market Price Market value is the estimated price the property *should* sell for under typical conditions (an appraiser's opinion). Market price is the actual price the property *did* sell for in a specific transaction. These can differ significantly. A distressed sale (divorce, foreclosure, estate) may produce a market price well below market value. A competitive bidding war in the Bay Area may produce a market price above market value. ### Market Value vs. Assessed Value California Proposition 13 (1978) fundamentally changed how property is assessed in the state. When a property is purchased, it is **reassessed…