What Does the Term "Market Value" Mean?

When a real estate agent talks to you about listing your home, you'll hear a great deal of talk about "market value," but just what's meant by that term? In this article, we're only going to be considering your single family home, because different standards and calculation methods apply to commercial and investment property, but let's examine what market value is, and how it's determined.

Put simply, a home's market value is the price at which it should sell once it's put on the market for a reasonable amount of time, which generally means thirty to ninety days.

Within that definition are two main variables that affect a home's market value: the house itself, and the time period during which it's to be sold. First, let's look at the house itself. Every home sits in some kind of neighborhood, whether it's in the middle of downtown or way out in the country, and the location of a house will have a large influence on its market value.

The neighborhood is important, but condition of the house is also an important factor when it comes to determining its market value. The nicest home in the neighborhood normally will have the highest market value, while a house that needs a great deal of renovation will be worth less, even if it's in the best neighborhood in town.

The condition and location of a home will affect the market value in proportion to how quickly the owner wants to sell it. In order to attract a greater number of buyers and to sell the home more quickly, the price will need to be lower, which brings us to the second factor in the market value equation: time.

Regardless of where it may be located, if a house doesn't sell with the one to three month marketing period, the chances are that it was overpriced. Even brand-new homes, in brand-new subdivisions, in the most desirable part of town won't sell within thirty to sixty days if the price is too high. (On the flip side, if a home sells in a week or less, the chances are that the marketing price was too low. But most of the time, errors in calculating market value are made on the too-high side.)

Determining market value is both an art and a science, and a skilled real estate agent, armed with information about the area, other listings, and previous sales, can generally come quite close to a price that will get the home sold within one to three months. After all, it's their job to help get you the best sales price possible - in a reasonable amount of time.

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