Real Estate Market Value New Orleans Area –What buyers & Sellers Should Know
Real Estate Market Value New Orleans Area –What buyers & Sellers Should Know
I believe the definition of market value is very important in the understanding of how appraisers arrive at an estimated market value. Numerous definitions of market value have been devised over the years by professional organizations,
government bodies and the courts. A widely accepted definition of market value required for federally related appraisals by FIRREA is as follows.
The most probable price 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 specific date and the passing of the title from seller to buyer under the following conditions.
1. Buyer and seller are typically motivated.
2. Both parties are well informed, or well advised & acting in their best interest.
3. A reasonable time is allowed for exposure in the open market.
4. Payment is made in terms of cash in U. S. Dollars or in terms of financial
arrangements comparable thereto.
5. The price represents the normal consideration for the property sold unaffected
by special or creative financing or sales concessions granted by anyone associ-
ated with the sale.
Market value or value in exchange, is the purpose of most valuations. A market value estimate reflects the appraiser’s interpretation of the action of buyers and sellers in the market place.
In appraisal valuation process the most frequently used process for estimating value is the Sales Comparison Approach to value. The Sales Comparison Approach is based on comparing and contrasting pertinent data on comparables which have actually sold. In this process the appraiser takes historical data gathered from many different sources and makes comparisons of similar properties and makes plus or minus adjustments for any differences.
When carefully collected, analyzed, verified and reconciled, market data usually provides the best indication of the market value for a property. The price that a typical buyer pays is often the result of a shopping process in which many properties are examined and evaluated. Buyers often base their value conclusions primarily on properties that are being offered for sale.
The principle of substitution states that when several commodities or services with substantially the same utility are available, the one with the lowest price attracts the greatest demand and the widest distribution. It is important to understand how this principle specifically applies to the theoretical framework of the market data approach. In single family residential markets , this means that when a residence is replaceable in the market (which it usually is) its value tends to be set by the cost of acquiring an equally desirable substitute residence. Experienced real estate brokers know that most buyers will accept more than one house in the market in which they are shopping and will accept only a short delay in negotiating the purchase of any specific house.
A popular myth is that one can sell a house at almost any price if one is willing to wait long enough for the one buyer who wants only that particular house and will pay substantially above its market value to obtain it. Houses that are listed substantially above market value generally remain unsold no matter how long they are offered for sale. The principle of substitution provides the basis for this premise that the market for comparable houses offering a similar quality of shelter, amenities and other considerations characteristic of that market.
Market values are already set by the buyers and sellers in the market place. Appraisers just take this information, analyze it into the appraisal valuation process to obtain an estimate of value.
The preceding article may be subjective in nature and represents the professional opinion of the author/ appraiser ,Nick Leggio.