What is Market Value, and how does it Affect Investors?

The term “market value” gets thrown around a lot in real estate, especially when you’re investing in it. And while the term is an important one, it’s also one that often gets confused with other important terms such as “listing price,” “sales price,” or “cost.” In fact, market value is different from all of these things, and it’s important you know the difference.

In its most simplest terms, “market value” is an educated guess on how much any given property is worth. It is not a concrete number, nor is it the amount a home has to be sold for. It is simply a guess, a guideline given, usually by a professional in the industry, as to what would be a fair price for a property to be bought and sold for.

while it is in simple terms, the actual definition of market value is a bit more involved and includes certain specifications. These include things such as the fact that market value cannot be determined if there is no competition, as there is nothing to compare the property to. Market value can also not be determined through coercion, force, or trickery. This is one issue that may come up if sellers don’t provide full disclosure on a home during the appraisal process.

Market value is something that’s determined in both commercial and residential real estate. And while it’s certainly not set in stone, lenders, sellers, and buyers all pay great attention to it when that number comes up.

It usually comes from an appraiser, who’s typically been hired by the lender in order to determine what the market value of a property is. The lender then uses this number to determine how much of a mortgage would need to be applied to the property, and determine whether or not buyers or investors can afford to purchase the property.

Remember that the need to compare is very important when it comes to market value, and what the number is for any property. It’s also the method appraisers will largely use. They will inspect the property and compare it with others. The items up for comparison are square footage, number of beds and baths, and the quality and condition of the property (again, full disclosure.)

If rental property has been used in the past as a rental property, a “rental income approach” may also be used during the market value and appraisal process. With this approach, all of the above things are taken into consideration, but the lender will also take into account the fair market rent for the property.