Market Value Vs. Market Price

How much is a home worth? That depends upon who is asking the question. If the person asking the question is a home seller, it might appear worth more in her eyes than market conditions warrant. If the person asking the question is a buyer, his concern may be whether it can be purchased for less than its listed price. In theory, market price and market value should be the same, but they rarely are.

Simply put, the real estate definition of a home's market price is the price agreed upon by a willing buyer and a willing seller. That price might not be the original listing price, or even represent the property's true market value. As long as appraisers appraise it for at least the value of whatever loan may be necessary to purchase it, that price represents the real value of the transaction.

Market value is an opinion of value based on a detailed analysis of relevant data. It is the price that a property could bring in an open market between a willing buyer and a seller, with no outside influences or barriers to sale or purchase. Theoretically, both would have perfect market information and sale conditions would be neutral — neither favoring the buyer or the seller. However, real estate is a “perfect” example of an imperfect market; this nirvana does not exist.

The sales price a seller is willing to set and the price a buyer may be willing to pay for that home, may or may not, represent that property's true value. There can be special considerations present; a special relationship between the buyer and the seller, an emotional attachment to a property, or the transaction may be a component in a larger set of transactions between the buyer and seller. The property may be for sale during bad economic times, or the reverse, during an era when supply cannot keep up with demand.

There are occasions when a property's value can command a premium price. A buyer may have information about a property (such as a proposed highway or subdivision development) that may lead him to “invest” in the parcel. Or a homeowner whose neighbor puts his property for sale may decide to purchase it for the asking price or more, gaining greater control over his surroundings, while assembling a larger, more valuable, holding.

It's true — economic factors and environmental factors influence the gap between a home's market value and its market price. Where you live truly can determine both price and market value. Setting out to buy a bungalow in Boston is a very different experience than buying a ranch in Rawlins or a tutor in Toledo. Not only does the relationship of supply and demand intervene, but the cost of construction goods and materials and local labor costs, as well as general market incomes, become factors. As a rule, the larger the metropolitan area, the greater variation there will be in home prices and the more expensive property can become to acquire.