Information about Market Value
Market Value is the price at which an asset would trade in a competitive Walrasian auction setting. Market Value is usually interchangeable with Open Market Value or Fair Value. International Valuation Standards (IVS) define Market Value as:
Market Value is a concept distinct from market price. The concept is most commonly invoked in inefficient markets or disequilibrium situations where prevailing market prices are not reflective of true underlying market value. For market price to equal market value, the market must be informationally efficient and rational expectations must prevail.
Appraisals are usually performed under some set of assumptions about transactional markets, and those assumptions are captured in the definition of value used for the appraisal. The most common definition of value used for real estate appraisals in the U.S. is referred to as market value, fair market value, or sometimes true market value. Commonly, the definition set forth for U.S. Federally regulated lending institutions is used, although other definitions may also be used under some circumstances:[2]
Other definitions are also commonly used. The text, The Appraisal of Real Estate lists over a dozen different types of value. [3] The Uniform Standards of Professional Appraisal Practice requires that when market value is the applicable definition, the appraisal must also contain an analysis of the highest and best use as well as an estimation of exposure time.
Some property tax jurisdictions allow agricultural use appraisals for farmland. Also, current IRS estate tax regulations allow land under an interim agricultural use to be valued according to its current use regardless of development potential. [8]
- :Market Value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgably, prudently, and without compulsion.[1]
Market Value is a concept distinct from market price. The concept is most commonly invoked in inefficient markets or disequilibrium situations where prevailing market prices are not reflective of true underlying market value. For market price to equal market value, the market must be informationally efficient and rational expectations must prevail.
Market Value in Real Estate
The term is commonly invoked in real estate appraisal, since real estate markets are generally considered both informationally and transactionally inefficient. Also, real estate markets are subject to prolonged periods of disequibrium, such as in contamination situations or other market disruptions.Appraisals are usually performed under some set of assumptions about transactional markets, and those assumptions are captured in the definition of value used for the appraisal. The most common definition of value used for real estate appraisals in the U.S. is referred to as market value, fair market value, or sometimes true market value. Commonly, the definition set forth for U.S. Federally regulated lending institutions is used, although other definitions may also be used under some circumstances:[2]
- The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
Other definitions are also commonly used. The text, The Appraisal of Real Estate lists over a dozen different types of value. [3] The Uniform Standards of Professional Appraisal Practice requires that when market value is the applicable definition, the appraisal must also contain an analysis of the highest and best use as well as an estimation of exposure time.
Other Definitions of Value
Market value is the most commonly used definition of value in real estate appraisal in the U.S. because it is required for all Federally regulated mortgage transactions and because the International Association of Assessing Officials has accepted it for use in property taxation. However, real estate appraisers use many other definitions of value in other situations[4].Liquidation Value
Liquidation Value: the most probable price that a specified interest in real property is likely to bring under all of the following conditions:- Consummation of a sale will occur within a severely limited future marketing period specified by the client.
- The actual market conditions currently prevailing are those to which the appraise proeprty interest is subject.
- The buyer is acting prudently and knowledgeably.
- The seller is under extreme compulsion to sell.
- The buyer is typically motivated.
- The buyer is acting in what he or she considered his or her best interest.
- A limited marketing effort and time will be allowed for the completion of the sale.
- Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.
- The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
Orderly Liquidation Value
This value definition differs from the previous one in that it assumes an orderly transition, and not extreme compulsion.[5]- Orderly Liquidation Value is the gross amount, expressed in terms of money, that could be typically realized from a liquidation sale, given a reasonable amount of time to find a purchaser (or purchasers) with the seller being compelled to sell on an as-is, where-is basis, as of a specified date.
Federal Land Acquisition Definition
For land acquisitions by or funded by U.S. Federal Agencies, a slightly different definition applies:[6]- Fair Market Value is defined as the amount in cash or terms reasonably equivilent to cash, for which in all probability the property would be sold by a knowledgeable owner willing but not obligated to sell to a knowledgeable purchaser who desired but is not obligated to buy. In ascertaining that figure, consideration should be given to all matters that might be brought forward and reasonably be given substantial weight in bargaining by persons of ordinary prudence, but no consideration whatever should be given to matters not affecting market value.
Going Concern Value
When an appraiser values the combination of a business and the real estate used for that business, the specific market value is called Going Concern Value. It recognizes that the combined market value may be different from the sum of the separate values:[7]- The market value of all the tangible and intangible assets of an established operating business with an indefinite life, as if sold in aggregate.
Use Value
Use value takes into account a specific use for the subject property and does not attempt to ascertain the highest and best use of the real estate. For example, the appraisal may focus on the contributory value of the real estate to a business enterprise.Some property tax jurisdictions allow agricultural use appraisals for farmland. Also, current IRS estate tax regulations allow land under an interim agricultural use to be valued according to its current use regardless of development potential. [8]
See also
References
1. ^ IVS 1 - Market Value Basis of Valuation, Seventh Edition
2. ^ Federal Register Vol. 55, No. 163, August 22, 1990. This definition has also been adopted by the International Association of Assessing Officials for tax assessment purposes.
3. ^ Market Value(s) by John A. Kilpatrick, presented to the Appraisal Institute, 2001
4. ^ Dictionary of Real Estate Appraisal, 4th ed. (Chicago: Appraisal Institute)
5. ^ Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery and Technical Assets, 2nd ed., (American Society of Appraisers, 2005)
6. ^ Uniform Standards for Federal Land Acquisition
7. ^ The Appraisal of Real Estate, 12th ed., (Chicago: The Appraisal Institute, 2001)
8. ^ [1]
2. ^ Federal Register Vol. 55, No. 163, August 22, 1990. This definition has also been adopted by the International Association of Assessing Officials for tax assessment purposes.
3. ^ Market Value(s) by John A. Kilpatrick, presented to the Appraisal Institute, 2001
4. ^ Dictionary of Real Estate Appraisal, 4th ed. (Chicago: Appraisal Institute)
5. ^ Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery and Technical Assets, 2nd ed., (American Society of Appraisers, 2005)
6. ^ Uniform Standards for Federal Land Acquisition
7. ^ The Appraisal of Real Estate, 12th ed., (Chicago: The Appraisal Institute, 2001)
8. ^ [1]
A Walrasian auction, introduced by Leon Walras, is a type of simultaneous auction where each agent calculates its demand for the good at every possible price and submits this to an auctioneer.
..... Click the link for more information.
..... Click the link for more information.
Market price is an economic concept with commonplace familiarity; it is the price that a good or service is offered at, or will fetch, in the marketplace; it is of interest mainly in the study of microeconomics.
..... Click the link for more information.
..... Click the link for more information.
In finance, the efficient market hypothesis (EMH) asserts that financial markets are "informationally efficient", or that prices on traded assets, e.g., stocks, bonds, or property, already reflect all known information and therefore are unbiased in the sense that they reflect the
..... Click the link for more information.
..... Click the link for more information.
economic equilibrium is simply a state of the world where economic forces are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change.
..... Click the link for more information.
..... Click the link for more information.
Rational expectations is a theory in economics originally proposed by John F. Muth (1961) and later developed by Robert E. Lucas Jr. It is used to model how economic agents forecast future events.
..... Click the link for more information.
..... Click the link for more information.
Real estate appraisal is the practice of developing an opinion of the value of real property, usually its Market Value. (Real estate appraisal is American usage; many other countries use the terms property valuation or land valuation.
..... Click the link for more information.
..... Click the link for more information.
The IVSC - The International Valuation Standards Committee, is a Non-governmental Organisation (NGO) member of the UN, with membership that encompasses all the major national valuation standard-setters and professional associations from 41 different countries.
..... Click the link for more information.
..... Click the link for more information.
Dr. John A. Kilpatrick (born on January 7, 1954, Portsmouth, Virginia) is a business executive and author in the real estate field. He is President and CEO of Greenfield Advisors, the author of four books on real estate development, and a frequent public speaker and contributor to
..... Click the link for more information.
..... Click the link for more information.
This article is copied from an article on Wikipedia.org - the free encyclopedia created and edited by online user community. The text was not checked or edited by anyone on our staff. Although the vast majority of the wikipedia encyclopedia articles provide accurate and timely information please do not assume the accuracy of any particular article. This article is distributed under the terms of GNU Free Documentation License.
Herod_Archelaus
