Well said Kathy, market value is exactly that; what the market will bear.

Nice Job with posting this one!  We sure do get blamed for everything.  I make sure to point this out when listing a home that I, the Realtor, am not setting the price for the home.  Instead the sellers will do that!  Now, if i think they are going to price it too high, I don't have a problem telling them I am not going to take the listing...

Susan - Tis the reason we have ups and downs in the market place supply and demand are other factors that affect Market Value - again determined by buyers and sellers timeing not Realtors® opinions.

Michael - Giving good advice is only as good as those who are willing to listen sometimes you are better off to just walk away.

While I totally agree with your post, it is necessary in the course of our jobs, to establish an estimate of market value for both Buyers and Sellers and, it happens again in the appraisal process.  Buyers and Sellers also need to understand that there is such as thing as over-priced and there are such things as low-ball offers; neither typically do anyone any favours.  If the last three sales in a townhouse complex were between $150,000 to $155,000, you are not suddenly going to sell an identical unit for $185,000, right?

Marg - Right but its amazing how many Sellers still want to try and like wise how many buyers want to try the $120,000 route. Somwhere in between if they hang in and allow their Realtor® to negotiate, negotiate, negotiate they will establish "TRUE MARKET VALUE" provided they have a Realtor® who will even deal with them that far apart. 

Kathy, I often re-visit textbook definitions, including the fact that ultimately, the buyer or seller is the "boss". But, in the agreement between client and broker/agent, we have the right to choose whether or not we will take on a person as a client. My basis for accepting a client is: #1: Being within a reasonable market range so that I am not throwing my time and money down the tube, #2: Chemistry.

Suzi - Choice is a wonderfull thing - I always reserve the right to part ways in a friendly manner when we can not see eye to eye.

David - Market Value and Market Price to me are the same thing. Now if we were discussing "Fair" Market Value then properties sold under unusual circumstance's such as you describe in your 1st, 2nd and 4th points I would agree they were not sold for "Fair Market Value" I am not so sure about your 3rd point, a sale of this nature "could" fall within the willing buyer willing seller etc etc definition of "market value"  I am however sure we both recognize that one sale does not a market make.

If the "market value" for a given type of home is $500,000 and suddenly they start selling for $450,000 is the market value still $500,000 but the market price only $450,000 did the vendors and the purchasers not set a new "Market Value" for that given type of home. That new "market Value was not set by the appraisers or the Realtors® it was set by the market hence "market value". Likewise the cost to reproduce a property may be less or more that what it sells for which value represents the "market value" the cost to reproduce or the market/sale price set by the buyer and the seller.

As an appraiser when you appraise a property you might mention, but you likely do not include, property sales that are outside the norm for properties similar to what you are appraising, especially if you are unaware of all the circumstances and conditions affecting the sale which may determine that they were not sold for "Fair" Market Value. Also as an appraiser I am sure you include some form of definition of "Fair Market Value" in your appraisal report.

Kathy   -   AHhh!  OK!  I think I understand what you are saying now with Market Value and Market Price being one and the same.  That falls into the similarities and differences I mentioned.  A lot of people us the term  "Market Value" as a standard reference - the key word being Value - with the definition of the intended use representing a different conclusion.    In the U.S. appraisal field,  Market Value and Fair Market Value  are one and the same - with the  "Standard Definition", for financing by a Federally Regulated Institution, being: 

The most probable price 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, 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: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) 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. 

I agree that one sale does not a market make.  In the example presented, using your definition as I understand it to be, the Vendors and purchasers (not the appraisers or Realtors) did set a new "Market Value" for that particular type of home.   

I am not fully informed on the valuation methods used outside the U.S., but (correct me if I am wrong) aren't property valuations in Ontario regulated by the  Royal Institution of Chartered Surveyors with guidelines published in the Appraisal and Valuation Standards, which is referred to as the Red Book?  So out of the 5 classifications of methods used, the  Development/residual method and  Contractor's/cost method would be catagorized with the Cost Approach we use for determining replacement or reproduction cost.   In the example, both the cost to reproduce and market/sale price would/could represent "Market Value", depending on the intended use of the valuation conclusion, using the Cost Approach but not the other two methods.  The Development/Residual method is used on properties for development, redevelopment, and bare land only, and the Contractor's/Cost method is used only for properties  not bought and sold on the market.

David -AHhh perception is in the eye of the beholder. There are many many definitions of market value out, there many of which you and I would both disagree with from our viewpoint.

I would agree that in the appraisal world when you are appraising a property Market Value and Fair Market Value are one and the same because you are estimating the market value based on historical and statistical information. Like wise when a Realtor® provides an "opinion" of value (market value) to a potential vendor they are using a similar process.

A Realtor® when providing an "opinion" of value for a residential property in most cases use only the comparative approach with the odd one using the cost approach and even fewer using the income approach. On the other hand, an appraiser in doing an appraisal would generally look at more than the market, or comparative approach, for valuation purposes depending on the type of property they would also use/consider the cost approach and/or the income approach. 

Its interesting to note that quite often the two values arrived at are not the same although the are likely close. The appraiser is using a hands off approach generally having not seen the actual properties they are using as comparables relying on printed information on listings and information from other sources, while the Realtor® has generally been "in" the comparables they are using and a certain amount of personal opinion may show up in their "opinion" of Market Value.

It is seldom that two identical homes on the outside are identical on the inside, while both are very clean and presentable one may have outdated decorating and fixtures while the other may have had all the updating done. The appraiser in this case is at a disadvantage in estimating the publics "perceived" market value for the home but would be able to provide a mortgage lender with a very good estimation of its market value with both being correct in their estimation for the intended use of the appraisal/opinion.

It is interesting to note that an assessed value for property taxes can vary as much as 20% from an actual sale and still be considered fair and equitable by the assessment world even though they are using "market value" assessments.

Kathy

Now that I agree totally with. 

The type of property and the purpose for value conclusion definitely determines the finite definition required.  To respond to a previous statement, yes, a definition is included in the appraisal report and addressed in the scope of  work.  As to which approach to value is used is also determined by the type of property and purpose.  The most common is the comparison approach and the cost approach (although different) does or should support the previous and its conclusion. 

With our regulations preventing access in or even on the property of a comparable, the appraiser can only inspect the comparable visually from the street, and is reliant on data gathered from other sources.  That's when the appraiser will contact the Realtor/Agent and that's why it is important for Realtors/Agents to disclose accurate information in MLS listings. 

David - We have a vendors disclosure form that details certain things about the property that are disclosed to the potential purchaser but are not necessarily listed on the listing. Unless you were to talk to the listing Realtor® you would likely never get that information and even then you might not get it due to privacy laws.

When estimating the market value for a sale I don't know that I could or would agree that the cost approach does or should support the comparisson approach other than in a very stable market. If the market is affected in a manner that prices are rapidly escalating upward or downward then the cost approach could be way off.

Kathy  -  There are disclosure forms here that the Seller (Vendor) fill out for buyers, and yes, most of the information is not part of the listings.  Therefore the reason for contacting the Realtor/Agent.   

The Royal Institution of Chartered Surveyors (RICS), which encompasses all of the building and property-related professions, formed a collaboration with the Counselors of Real Estate (a division of the National Association of Realtors), and the Real Estate Counceling Group of America to develop the International Valuation Standards which facilitates global real estate practices.  Other members also include the American Society of Appraisers and National Association of Master Appraisers (founding sponsor-members of the Appraisal Foundation  - which developed USPAP - Uniform Standards of Professional Appraisal Practice).  Thus the reference made earlier to  "Similarities" and the need, and/or requirements set upon the appraisers part, to obtain information from Realtors/Agents.  And yes there are privacy laws, but also confidentiality laws on appraisers in regards to information necessary to form an opinion of value.

True, the Cost Approach does not always support other approaches, as you said, in a rapidly increasing or declining market, and from the last changes in appraisal forms, is no longer  "required" but does have merit, again, depending on the purpose of the valuation.

Oh by the way  -  Thank you for adding me as an associate.

David - Your Welcome