What is "Market Value"?

Is "market value", "assessed value", "appraised value" and, "cost" the same thing?  In a word “No”.  These three terms sound like they may be interchangeable, yet, they have three distinct definitions.

Let’s explore the meaning of each of the terms mentioned above.

Market value:  This is a term that has a degree of subjectivity attached to it.  A textbook definition of this term, as it relates to real estate is, the highest price a purchaser is willing to pay for a property compared with the lowest price a seller of a home is willing to sell the property for.

Assessed value:  This term is defined as what a local municipality uses as a value to raise operating funds to meet its financial obligations in exchange for providing services such as road maintenance, water and sewer lines, public and fire safety, among other things.  The assessed value should not be used as a basis for determining what the market value of a property might be.  There is no correlation between the market value of a property and the assessed value. 

Appraised value:  In New York state, a licensed real estate appraiser produces a written report or an “appraisal”, which presents the appraised value.  There are several accepted appraisal methods for determining value of real property, yet, the most often used in real estate is the “comparison method”.  The comparison method compares homes that are similar or comparable in location, age, taxing municipality, school district, size, condition and utility.  Typically, a real estate appraiser will select three comparable properties that have sold within the last three months. However, given market conditions, area, and the availability of sold comparable properties, a real estate appraiser may select properties which sold six months or more in the past and will adjust for current market conditions. 

Cost:  Simply stated, the price which was paid to acquire the property.  There is no correlation between cost and market value.  For example, if someone inherited a property for $0.00, that wouldn’t make the property worth $0.00.

In summary, how does a real estate professional determine market value?  By gathering many factors that include competition in the market, current interest rates, global events, local economies, local and regional unemployment rates and, based upon experience, offer the client an informed recommendation.  In truth, real estate sales professionals don’t establish market value.  The market value is established by the sellers and buyers found in the market.  The real estate sales professional interprets the market data and identifies market value.