Market Value - Real Estate

Real Estate

The term is commonly used in real estate appraisal, since real estate markets are generally considered both informationally and transactionally inefficient. Also, real estate markets are subject to prolonged periods of disequilibrium, such as in contamination situations or other market disruptions.

Appraisals are usually performed under some set of assumptions about transactional markets, and those assumptions are captured in the definition of value used for the appraisal. Commonly, the definition set forth for 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; and 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."

USA, Licensed or Certified Apppraisers may be required under state, federal, or local laws to develop appraisals subject to USPAP Uniform Standards of Professional Appraisal Practice. The Uniform Standards of Professional Appraisal Practice requires that when market value is the applicable definition, the appraisal must also contain an analysis of the highest and best use as well as an estimation of exposure time. Many states do not require mandatory licensure of appraisers.

It is important to note that USPAP does not require that all real estate appraisals be performed at market value. Indeed, there are frequent situations when appraisers are called upon to appraise other values. If a value other than market value is appropriate, USPAP only requires that the appraiser provide both the definition of value being used and the citation for that definition.