What is the “value” of my property?

Appraisers, through a formal appraisal, and brokers or salespersons, through a competitive market analysis, esti­mate the value of real property. Value is broadly defined as the power of a good or service to command other goods or services in exchange. There are many different types of value, including: market value, assessed value (for tax purposes), book value, insurance value, par value, rental value, and replacement value. Of these, people selling real estate will most commonly be concerned with market value.

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Market value is an estimate of the most probable price that a parcel of real estate should bring in cash in an open and competitive market. In other words, what a fair price ought to be. Do not confuse market value with market price. Market price is the actual amount paid by a buyer to a seller for a particular parcel of real estate. Market price could be higher or lower than the market value. Likewise, market rent (economic rent) is the actual rent that a lessee agrees to pay to a lessor.

Market value is based on the following six assumptions:

  • Market value represents the most probable price, not the average or highest price;
  • Property has been exposed on an open market for a rea­sonable length of time;
  • Buyers and sellers are reasonably well informed about market conditions and the uses to which the property may be put;
  • Buyers and sellers are not related and not acting under undue pressure to conclude a transaction;
  • Sellers have the capacity to convey marketable title; and
  • Payment is made in cash or its equivalent.

However, all six of these assumptions are rarely, if ever, present. For example, a seller might be forced to sell quick­ly due to business reasons; an out-of-state buyer may not be well informed about the local market; or a parent may sell below market value to a son or daughter.A competitive market analysis is the only circumstance in which a broker or salesperson may estimate real estate value for a client. Remember that a broker and salesperson may only advise and assist the client. This includes advice and assistance in recommending a reasonable listing price for real estate. The broker or salesperson makes this recommendation by conducting a competitive market analysis, or CMA. A CMA compares the prices of similar properties recently sold in the same locality. A good comparable must not only be similar in location, but it must also be similar in size, age, style, and amenities. If there are no adequate comparable properties (called comparables), the broker or salesperson should recommend that the property be formally appraised. Contact me or one of our agents if you’d like to get a free comparative market analysis of what your property is worth today.

See also: Can I trust Zillow to value my home?

For more information or to set up an appointment call Nesbitt Realty at (703)765-0300.
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