California Real Estate Broker ExaminationValuation and AppraisalEasy
A property owner wants to determine the market value of their property. Which of the following is the most accurate definition of market value?
- AThe highest price a buyer would pay for a property.
- BThe value assigned to a property for property taxation purposes.
- CThe price a property actually sold for in a specific transaction.
- DThe most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale.
Show answer & explanationAnswer & explanation
Correct answer: D. The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale.
Market value is a theoretical concept representing the most probable price, assuming an arm's-length transaction and informed parties. It's an estimate, not necessarily the actual sale price.
Why the other options are wrong
- A. This is only one side of the equation; market value considers both buyer and seller.
- B. This describes assessed value, used for tax purposes.
- C. This describes sale price, which may or may not equal market value.
Market Value
Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably.
- It is a theoretical estimate, not necessarily the actual sale price.
- Assumes an arm's-length transaction (unrelated parties).
- Assumes well-informed buyers and sellers, free from undue pressure.
Memory trick: M-A-I-B-S: Market, Assessed, Insurable, Book, Salvage are value types.