How is "market value" defined in real estate?

Market value in real estate refers to the price that a willing buyer would pay to a willing seller in an open and competitive market. This definition captures the essence of how value is determined in real estate transactions. It assumes that both parties are acting in their own best interests without pressure, and that the property is exposed to the market for a reasonable period, allowing for competitive bidding among potential buyers.

This concept is fundamental because it reflects the true economic conditions of the market. It disregards subjective opinions about value and focuses on actual transactions and behaviors of buyers and sellers in the marketplace. Market value is typically established through comparable sales analysis, which examines similar properties that have recently sold to gauge the going rate for a specific property.

Other options are less accurate in describing market value. The average price of properties in an area may reflect trends but does not account for the nuances of individual property conditions, timelines, or negotiations. The listing price set by sellers can vary widely and does not necessarily reflect market conditions or buyer willingness. The appraised value determined by lenders is an opinion of value for financing purposes and could differ from the actual market value based on buyers’ perceptions and actions.