What is Fair Value?
Fair value is a critical concept for those seeking to determine the true and objective value of a property. It forms the basis of accurate pricing in the real estate market, protecting the rights of both buyers and sellers.
What is Market Value?
Market value refers to the agreed-upon price of a property during a transaction between well-informed and willing parties. This value is determined under free market conditions, in an independent and pressure-free environment.
According to the International Valuation Standards (IVS), market value is defined as:
“The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's-length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently, and without compulsion.”
Determining Market Value
- Estimated Price: The projected amount for the property’s transfer.
- Valuation Date: The date and market conditions under which the transaction occurs.
- Willing Buyer and Seller: Parties acting voluntarily and independently.
- Knowledge and Prudence: Parties making informed and rational decisions.
- Marketing and Advertising: Proper promotion of the sale.
Comparative Market Analysis
One of the most common methods for determining a property’s market value is comparative market analysis. This approach evaluates similar properties’ recent sales to derive a value.
Key Considerations in Analysis
- For selecting comparables, choose properties sold before the valuation date in a similar location.
- In special circumstances (e.g., foreclosures, undervalued declarations, sales between relatives), consider the discount rate.
- The evaluated property should ideally be in the same neighborhood or a comparable street.
The Importance of Fair Value
Under the framework of International Valuation Standards, fair market value is determined through well-selected comparables and appropriate analysis methods. This process reveals the true potential of the property, ensuring that parties transact with confidence.
To learn your property's true value and take the right steps, seek expert guidance. An evaluation conducted with Fair Value offers reliable results for both buyers and sellers.
