Your Complete Guide To Understanding Real Estate and Realty Values
Differing Values | Subjective vs. Objective Value | Market Price vs. Market Value | Market Value Defined
Price mechanisms continuously operate to establish values in the marketplace. Countless exchanges of goods and services and a host of prices ultimately lead to value. Real Estate value is intrinsically tied to sale prices. Value responds to price fluctuations over time, as supply/demand forces play out in the marketplace.
Many types of value are referenced in our complex society. The Canadian economy is filled with value; insurable value, book value, appraised value, salvage value, assessed value, liquidation value, loan value...even sentimental value. In real estate, the primary focus rests on market value. Endless debates rage on what constitutes value. Undeniably, the ebb and flow of the market and price mechanism (asking and selling prices) are at the source. Value, for real estate, is most commonly confirmed through analysis of historical data.
Subjective vs. Objective Value
Value has both subjective and objective dimensions: objective relating to the direct cost of creating (ie: acquiring a lot and building a home), and subjective involving the perception of value in the minds of the buyer and seller. In subjective valuation, cost is not the primary consideration, but rather the present worth of future benefits that accrue from ownership. For example, a home and lot may objectively cost $225,000 to build, but the $195,000 selling price is subjective (value in the eyes of the buyer).
Market Price vs. Market Value
Market price is the price for an individual property, while market value is an estimate of value arising from many sales (market prices). Consumers are often misled by market price. For example, a sale may occur for $295,000 and neighbour's assume that comparable homes will command at least that value. However, special circumstances may have been present, ie: the seller was under financial duress and sold too low. Conversely, the property may have had a distinctive feature that commanded a higher price. Knowledgeable appraisers seek various comparable's (market prices) to ultimately estimate value.
Market Value Defined
Market value (value in exchange) is based on judgment arising from various sales in the marketplace. The definition, frequently found in appraisal reports, is: "The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress."
So, if you are thinking of selling and buying a homes this year, should you buy or sell first? I've had many clients purchase before they sell. I just want you to have all the information so you can make the best decision for yourself and your family. You may read more about buying or selling first here
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