South West Florida Real Estate

The Perception of Market Value
April 19th, 2017 5:56 PM

I have written several articles on market value in recent years because the term is widely used but often poorly understood.

In a broad sense buyers determine values with their ability and willingness to pay for a house.  We can list our houses for $1 million but if no one is willing or able to pay that much then the list price is simply speculation. 

Your Home as Viewed by Others

So isn't a buyers purchase offer market value for a given property?  Maybe.  Some buyers are not well informed, and make purchase offers not supported by other similar sales.  And buyer preferences play a part. 

Consider a house listed for sale for $150,000.  A buyer makes a full price offer based on the property's location adjacent to a school.  They like the fenced back yard, and the fact that the house has a well and septic system so they don't have to pay for city water and sewer. Unfortunately the buyers credit is questionable, and they cannot get a mortgage. The house is relisted for the same price.

Now a 2nd buyer views the house.  They need to purchase since their house is under contract.  They don't like the location next to the school, and hate the fenced back yard. And they really wanted city utilities. Since they need to move and the house is in their price range they offer $145,000 and the deal closes a month later.   

So what is the market value of this property?  From an appraisal perspective the market value is likely $145,000.  I say likely because other factors may come into play including concessions and creative financing.  But assuming other similar houses sell in the range of $145,000 then that is market value on the date of sale. 

Buyer perception and motivation plays a major role in determining values.  Changing interest rates, housing inventory levels, new construction, and local and national business and economic factors come into play.  So the next time some one uses the term market value, ask which definition they used and how they arrived at their conclusion!

Posted by TERRY CALDWELL on April 19th, 2017 5:56 PMPost a Comment

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