What does Market Value Mean?

Short Answer

Market Value assumes a normal marketing time and that the buyer and seller are equally as motivated to consummate the sale (no one is under pressure).

Definition

Market Value is generally defined as:

“The most probable price 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, 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:

  1. Buyer and seller are typically motivated;
  2. Both parties are well informed or well advised, and each acting in what he considers his own best interest;
  3. A reasonable time is allowed for exposure in the open market;
  4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
  5. 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.”
Source: From the OCC’s Final Rule, 12 CFR Part 34, Subpart C-Appraisals, Section 34.42(f), effective August 24, 1990.


What it Means

Market Value is the most sought after value in the appraisal industry because it essentially a typical listing and buying situation whereby the motivations to buy or sell are market-based. Neither party is under undue influence to buy or sell, besides being subject to ‘market conditions’. It also states that the buyer and seller are aware of the facts. A reasonable time for exposure in the open market refers to the assumption that, prior to the effective date of value, hypothetically, the property has been available for purchase/lease for a time period that is comparable to similar properties going under contract, measured from the date of the listing to the date of the contract or close.

Related Topics

Refer to our Value Vault resource section for additional appraisal definitions and appraisal related topics.