Definition
Market value is the estimated price a property would sell for in an open and competitive market under normal conditions. It represents the fair price that a willing buyer and a willing seller would agree upon, assuming neither is under pressure to buy or sell.
Explanation
Market value is determined by various factors, including:
- Comparable Sales (“Comps”) – Recent sales of similar homes in the same area.
- Property Features – Size, condition, layout, and upgrades.
- Location & Neighborhood – Proximity to schools, amenities, transportation, and crime rates.
- Economic Factors – Interest rates, housing demand, and job market stability.
Market value is different from appraised value and assessed value:
- Appraised Value – Determined by a licensed appraiser for mortgage approval.
- Assessed Value – Used by local governments to calculate property taxes.
- Market Value – The price a property is expected to sell for in a typical real estate transaction.
Real estate professionals use a Comparative Market Analysis (CMA) to estimate market value, while appraisers use a formal valuation process.
Example
A homeowner wants to sell their property and consults a real estate agent. After analyzing recent sales of similar homes in the neighborhood, the agent estimates the market value at $550,000. The home is then listed at that price, and an interested buyer submits an offer close to the estimated value.