Market Value: What Is It?
Current market value is a confusing concept. As consumers, most people shop at a store and pay the price printed on the price tag. A coat is worth $100 because that is what the price tag says. An apple is worth 45 cents because that is the tagged price.
When stores have sales on certain items, it is because the store was not able to sell all of the items for the original price within a certain amount of time.
At the beginning of the winter season the coat was worth $100. In the spring, the coat’s value may drop well below the original asking price.
Market value is really the price at which something will sell within a certain period of time. In real estate that amount of time is 3 to 6 months. So, market value is the price at which a particular home, in its current condition, will sell within a 30-60 day period.
The three elements in this formula are:
- The specific house
- Current condition
- 30-90 day timeframe.
The Specific House:
The specific house includes the location, and particular neighborhood in which the house is located. A house in Beverly Hills could be worth millions, but the exact same house may be worth much less in St. Louis.
House prices throughout the country fluctuate significantly from , state to state, city to city, and neighborhood to neighborhood. Real estate is truly local. Homes should be compared only with similar homes in similar neighborhoods.
The current condition of the specific house must be determined. Buyers will often choose houses based on the condition of the home. Buyers expect the major systems in the home to work and work well. If repairs need to be done, Buyers often want to tackle only cosmetic repairs. Curb appeal is very important to most Buyers. If the home looks worn and uncared for, Buyers assume there will be many problems with the house that are not just on the surface. It is important to compare the specific home with other houses in the same neighborhood. Buyers basically want a pretty house with functional systems.
In a normal market, if a house doesn’t sell within a 6 month period, the reason is usually price. Even if the house is perfect, if it does not sell in the six-month timeframe, it is overpriced. For example: a house listed at $250,000 may take a year to sell. If it were listed at $225,000 it may take six months to sell. At $200,000 it may sell within a few weeks.
The true market value is what someone will pay for a specific home, in its current condition and within a three to six month period.