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What is "Market Value"?

By
Real Estate Appraiser with Highlands Ranch Appraisals, LLC CR100001997

Market value is generally defined as the price a willing buyer would pay a willing seller for a property with neither buyer nor seller under pressure to act (relocation, death of a family member, divorce, bankruptcy, avoid foreclosure etc.). A market value sale also is known as an arm's length transaction. (A sale (transaction) made between a willing buyer and seller and no relationship to each other)

A number of factors may affect a residential property's market value, including:

  • External characteristics - "curb appeal", home condition, lot size, popularity of an architectural style of property, neighborhood etc.
  • Internal characteristics - size and number of rooms, construction quality, appliance condition, any updating or remodeling, kitchen and bathrooms, etc.
  • Supply and demand - the number of homes for sale versus the number of buyers; how quickly the homes in your area sell, and how easy financing is to get for the buyers
  • Location - desirability for a particular school district, neighborhood, style of homes, distance to jobs etc.

THE SALES COMPARISON APPROACH

The most common way to determine the market value of a residential property is to use the sales comparison approach. This is the primary method used by professional appraisers to determine the market value of residential properties.

By examining recent sales of at least three properties in a general (or similar) neighborhood that are comparable in building style, size and construction, one can begin to get a good understanding of a residential property's market value. Comparable sales should include characteristics similar to a given property, such as lot sizes, square footage, home style, age, and location of the home. A new three-bedroom two story house may not be comparable with an older three bedroom ranch, even if they are on the same street.

WHERE TO FIND COMPARABLE SALES

  • Local assessors' offices should be able to provide the sales history of a particular house, neighborhood, or style of architecture. Some assessors also provide lists of recent sales that one can browse and compare to the assessment roll.
  • Some private companies provide comparable sales online (some at a nominal cost); search for them using keywords such as "comparable home sales" or "comparable sales".
  • Online you can look at homes for sale and homes that already have sold
  • Many local newspapers are good sources of real estate information; they often have quarterly sales reports in the real estate or business sections.
  • A real estate agent may be willing to share his or her expertise and sales history information.

Remember staying within the same neighborhood is important and using comparables that are the most similar to the home is the best way to estimate the market value of a home.

 

Comments(2)

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Craig Chapman
Call Realty / Access Appraisals - Mesa, AZ
The Value Guy

This is an interesting question in relation to what constitutes an "appraisal", because an appraisal estimates a "market value".  If we look at the definition & then look at what real estate agents say they are providing in a "BPO", I have to ask, what is the difference besides a different word used for the same thing? They have crept into the appraisal field & taken a significant amnount of appraisal work away from appraisers by the use of a different term for essentially the same thing. Over 18 million BPOs were ordered last year in 2010. Many were used to base decisions about mitigation of loss & needed acurate, reliable estimates in order to help reduce loss to lenders. Many have been found to have been faulty.  Granted, there is some inacuracies found in appraisals, but it appears to be a much lower percentage. It just doesn't make any sence to save a hundred dollars or so & wind up with a valuation that may cause a multi thousand dollar increase in loss.  

Jun 16, 2011 01:32 PM
Danell Estrada
Highlands Ranch Appraisals, LLC - Highlands Ranch, CO

Craig you said it, BPOs need to go unless the realtors would like to get their appraiser's license that we worked so hard for. We are held to higher and higher standards and there is less expected of the BPOs.

"it just doesn't make any sence to save a hundred dollars or so and wind up with a valuation that may cause a multi thousand dollar increase in loss."

This statement should is well said.

Jun 16, 2011 02:02 PM