What is market value?
The term “market value” refers to the expected amount for which something can be sold or rented, based on conditions in the market at the time of exposure on the open market (in a “fair sale” or a “fair contract”). In real estate, of course, this refers to real property – either the sale of a building or a piece of land, or the lease of a space.
How is market value determined?
As with most things in real estate, the market value depends on several factors. The most common pair of determining factors are appraisals and comparable sales.
– A real estate appraisal is, most simply put, an opinion of value, expressed by a professional appraiser. The professional will consider several aspects of the property, such as its location, construction type, construction grade, finishes, development potential, zoning and use allowance, in order to assess what a fair market price would be. In the process of issuing a loan for the purchase of a property, the lender will assign an appraiser to evaluate the property and, on that valuation, decide a maximum loan amount.
– A real estate comparable sales study is another kind of valuation or appraisal. Instead of analysing aspects of the property which is being sold or leased, this process looks at other properties, which are similar, and what amounts these properties have leased or sold for. This process can result in either the increase of an underestimated intended asking price or the decrease of an overestimated intended asking price. Therefore, it works a fair market value gauge.
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