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What is Market Value?
Market value, also known as fair market value, is a term used in real estate to describe the highest price that a property can reasonably be expected to sell for on the open market. It’s the price that a willing buyer and seller agree on when both parties are fully informed about the property and neither is under stress to complete the transaction.
How is it used in real estate?
Market value plays a crucial role in real estate transactions, particularly when determining the listing price of a property. A property’s market value is influenced by a range of factors, including location, size, age, condition, and recent sales of comparable properties in the same area.
Real estate agents typically conduct a comparative market analysis (CMA) to determine the market value of a property. This involves researching recent sales of similar properties in the same neighbourhood to get an idea of the fair market value. They then adjust for differences in property characteristics, such as age, condition, and size, to arrive at an estimate of the property’s market value.
Market value is also important for buyers, who use it to determine whether a property is priced fairly. By researching recent sales of similar properties in the same area, buyers can get an idea of what a property is worth and make informed decisions about whether to make an offer.
Example
Samantha is selling her home and has hired a real estate agent to help her determine the listing price. The agent conducts a CMA and determines that the fair market value of Samantha’s home is $500,000. Samantha agrees to list the property at this price.
Several weeks go by without any offers, and Samantha begins to wonder if she priced the property too high. Her agent reassures her that they priced the property correctly and advises her to be patient.
A few weeks later, Samantha receives an offer of $475,000 for the property. She is initially disappointed, but her agent explains that this offer is still within the range of fair market value for the property. After negotiating with the buyer, Samantha ultimately agrees to sell the property for $485,000.
In this example, market value played a crucial role in determining the listing price and negotiating the final sale price. Without a clear understanding of the property’s fair market value, Samantha may have priced the property too high, resulting in a lack of interest from buyers. Conversely, if Samantha had priced the property too low, she may have missed out on potential profits from the sale.
Other Resources on Market Value
The British Columbia Real Estate Association (BCREA) provides a comprehensive guide to understanding market value in real estate. The guide explains the factors that influence market value and provides useful tips for buyers and sellers.
The Real Estate Council of British Columbia is a regulatory body that oversees the conduct of real estate professionals in the province. Their website provides information on the importance of fair market value in real estate transactions and what buyers and sellers should know about the concept.
The Canadian Real Estate Association (CREA) is a national organization that represents the interests of real estate professionals across Canada. Their website provides a wealth of information on market value, including how it is calculated, what factors influence it, and how it is used in real estate transactions.
