The historical definition of "Market Value": "What a willing and able buyer is prepared to pay for a property". Traditionally, sellers have set their prices based on either their competition, recent sales activity or a combination of both. Historically, this information was provided to the Seller by a real estate agent. The internet created a paradigm shift of access to information that has changed the real estate business for everyone. Today, as consumers garner information, they have the resources to flex their shopping muscles and dictate sale prices.
Since the Wall Street collapse, many buyers have been reticent to pull the trigger on purchases. As they watch the downward trends, those that do, enter negotiations armed with data and a confidence that has not been seen in at least a decade. The difference this time is that almost any purchaser can harvest data in minutes. Not only do they dictate "what" the market price is, but "where" it is going.
Many sellers maintain the expectation that their home should sell for more than the most recent sales; while a buyer will insist on a price still 5-10% from the bottom. Due to the pressures sellers are feeling (ie longer selling time and lack of offers), they tend to back down at a much faster tempo than in the past. An experienced agent can assist a prepared buyer and negotiate terms that were previously unheard of. As a market-savvy agent, I have helped by clients write offers that at face value match the listed price but also include back-end concessions (for closing costs or repairs) that benefit the buyer and still allow the seller/developer to save face.
My concern for sellers today is that if they don't get ahead of the curve it could become more and more costly for them. There is a difference between pricing a percentage below the last sale and pricing below the competition. The way we predict what a willing, able buyer will pay is to objectively look at these numbers - they will tell us where market value is.