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Market Value of a Property
The price at which a house or apartments would sell under typical circumstances is the market value of the property. It excludes a home sale under unanticipated circumstances that lead to compelled sales at reduced prices, such as the death of the family head, a move, an emergency, etc. To verify a property’s value, one must be aware that an appraiser uses a number of elements, such as the property’s location, size, condition, similar sales, current market circumstances, etc., to do the estimate.
Factors that Impact Your Property Value
There are various factors that impact the market value of a property. Some of those significant factors are,
- Property’s Location– Location is one of the significant factors in determining the market value of a property. The neighborhoods proximity to schools, colleges, hospitals, and other essentials affect the value of your property.
- Size and Layout– A property’s size and layout are two significant factors that impact the market value of a property. Properties with well-designed layouts tend to have better market value.
- State of the Property– If a property is in good condition and is well-maintained then the property value will be higher. On the other hand, properties that requires repair will have lower market value. So, maintenance and amenities highly affect the property value.
- Market Conditions– When demand is strong and supply is limited, real estate values often go high. In contrast, prices can remain static or even fall when there are more available homes than there are interested buyers. You can assess your property’s value with regard to the economy in general by following up with current market trends.
- Infrastructure Growth and Development– The cost of the property is significantly impacted by the planned and ongoing infrastructure development projects in the neighborhood. Generally speaking, properties with plenty of amenities are more expensive than those with less infrastructure.
Advantages of Knowing the Market Value of Your Property
For prospective homeowners, determining a property’s market worth has several advantages. Sellers might also profit from the knowledge at the same time. The following are some major benefits:
Helps in Making Well-Informed Decisions
Buyers and sellers may make more educated judgments when they are aware of the market worth. A reasonable price for a property can be ascertained by buyers. However, sellers are able to establish a price that is competitive.
Better Pricing
Knowing the property value will help determine accurate pricing while selling or buying the property. It is significant to understand that underpricing will cause possible financial loss whereas with overpricing you tend to lose potential buyers. So, knowing the market value will help you set the price right.
Aids in Knowing The Property In and Out
In general, land value studies enable purchasers to weigh the benefits and drawbacks of a specific parcel of property. Important information like the ultimate market worth, location, advantages, structural viability, and stamped photos are all included in these reports. Equipped with this knowledge, purchasers may decide whether to move forward with the purchase or look into alternative possibilities.
Helps in Negotiation
Knowing the correct property worth offers you the advantage and a better chance of negotiating better terms. You can bargain with confidence and receive a fair deal whether you’re buying or selling a property.
Financing Advantages
The market value is used by lenders to determine the property’s value, which may have an impact on the conditions of the mortgage. Buyers can obtain favorable financing by being aware of the market worth.
Aids in Understanding the Viability of Land
Many purchasers purchase real estate or land with plans to carry out development projects. Before committing to such initiatives, it is crucial to evaluate their feasibility. By evaluating the possible feasibility of development projects, land value helps buyers steer clear of unprofitable or impractical properties.
Market Value vs Fair Value: Key Differences
Market Value of a Property
The price a property is expected to command in the present economic climate is known as its market value. Assuming that both parties are fully informed about the property, and neither is under any obligation to buy or sell, it shows the value determined by the interaction of the interested buyer with the seller. The factors that determine market value include location, condition, similar sales, supply and demand, and market dynamics.
Fair Value of a Property
The price at which a property might be traded between informed and cooperative parties is known as its fair value. Usually, certain accounting rules or guidelines—like the International Financial Reporting Standards (IFRS) or the Generally Accepted Accounting Principles (GAAP)—are used to establish it. It could take into account elements other than market circumstances, such the precise goal of value, regulatory constraints, and potential financial or tax repercussions.
1. How Is It Determined?
Market Value- Impacted by market circumstances, investor mood, and supply and demand dynamics.
Fair Value- Evaluated in light of several elements, including risk concerns, prospective future cash flows, and the asset’s existing state.
2. What Are The Uses?
Market Value- Used for taxation, financial reporting, and evaluating the success of investments.
Fair Value- Used in regulatory compliance, mergers & acquisitions, and financial reporting.
3. What Does it Focus On?
Market Value- Reflects the prevailing sentiment and transactions within the market.
Fair Value- Focuses on the intrinsic value of the asset, often taking into account its long-term earning potential.
4. Significance in Decision Making
Market Value- Gives a quick overview of the state of the market, but it could not accurately represent the asset’s actual worth.
Fair Value- Provides a more thorough evaluation of an asset’s value, assisting in well-informed decision making.
5. Stability
Market Value- Vulnerable to changes brought on by investor behavior and market conditions.
Fair Value- Seems to be more steady because it is not dependent on market sentiment but rather on a determined estimate.
Frequently Asked Questions
1. What is the formula to calculate the market value of a property?
The formula that is used to calculate the market value of a property is, Value of property per sq ft = Total value of the property/ total area of the property is sq ft.
2. What are the different methods to calculate the value of my property?
Calculating the property value can be done in various methods. Some of the popularly used methods are belt method, comparative property valuation method, land & building method, development method, guidance value method, fair market value, and comparative property valuation method.
3. What are the significant elements in determining the property value?
There are two main aspects that determine market value. These are recent comparable sales and real estate appraisals. When determining a property’s Fair Market Value, these factors are crucial.