Active Rain June 14, 2010

Market Value is What Buyers are Willing to Pay

I have had a number of discussions with home owners lately where they make a reference to the “market value” of their home, as in “well, the market value of my home is $500,000, so I won’t take that $475,000 offer.”

This is faulty logic. The market value of a home is not some figure published somewhere. There is no blue book for houses. There is assessed value set by the municipality and there is appraised value done by lenders, but both are just educated guesses as to how the buying public will be have. 

Market value is what the buying public is willing to pay for your home. Appraised value and assessed value are educated guesses by 3rd parties. 

In two cases, I had clients learn this the hard way. In one example, I had sellers who were listed at an outlandish price by a previous broker and chased the market for over a year with me. When they adjusted their price with me, it always seemed to be too little too late. It took 2 competing bids at the same time, niether of which would offer more than 90% of asking, to have the sellers get it. I would estimate that the house sold for $30,000 less than they could have gotten had they taken my advice earlier. 

The second case was a cash buyer who took my advice and had the house appraised after their offer was accpted as part of their due diligence. When the appraisal came in low, they hesitated, and another buyer came in and offered $50,000 more than what our appraised value was. They got the house. We lost it. We found a better home later, but the lesson was learned. Markets are dynamic. 

“Market value” is an overused phrase, considering how often any particular property is sold (not often). However, if you are going to use the term, it is wise to understand that the buying public, the active, dynamic market, is the final arbiter of value. Everything else is just an opinion.