MARKET VALUE DEFINED

The most common definition of value used for real estate appraisals in the U.S. is referred to as market value, fair market value, or sometimes true market value.

Commonly, the definition set forth in U.S. Federally regulated lending institutions is used, although other definitions may also be used under some circumstances: The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.

Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

  • The buyer and seller are typically motivated
  • Both parties are well informed or well advised, and acting in what they consider their best interests
  • A reasonable time is allowed for exposure in the open market
  • Payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto
  • The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

The reason behind the above posting is to help the consumer better understand that an Appraiser is not independently identifying the “maximum” value of a property when they prepare an appraisal. Their job is to determine whether the purchase price meets the parameters of fair market value.

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