True Market Value

The issue of “market value” is popular these days. In the current environment, it may be one of the things I am asked about the most.

The market is picking up, and homes are selling more quickly, but the fact remains: Actual market value is the price at which a buyer is willing to buy, and a seller is willing to sell. It really is that simple although it may not seem simple to the buyers and sellers negotiating toward that agreed-upon price.

Of course the bank’s appraiser will have to verify and approve that price, and it must be an “arms-length transaction,” which means there were no special circumstances such as one family member selling to another. In other words, a true seller-to-buyer market sale.

Some sellers decide they “need” a certain amount out of the house in order to sell, usually based on what they have invested in it, or what they need to get out of it in order to move on to their next home. It is tough to tell them these numbers are irrelevant when it comes to market value. For instance, if your home, based on the most recent comparables from a Realtor or appraiser, is valued at $600,000, but you “need” to get $700,000 out of it, you are going to be frustrated by listing it at the higher number, as potential buyers will be looking at properties priced based on comparables and appraisals. Perhaps it’s just not the best time to sell. Or perhaps you should consider that whatever loss you’re going to take can be made up on the buying end (if you are “buying up”).

“Let’s just put it out there at this price and see what happens,” a seller might say. But they get frustrated because they’re not getting any offers (or even showings, depending on how overpriced it is), and Realtors – on both sides of the table – feel frustrated because the listing as priced is not workable.

Another such scenario is, “we’ll list it at $600,000, but we won’t take a penny less.” Sometimes sellers really mean that and other times they are just trying to stay as firm as they can on price. I encountered a situation recently in which the seller would not accept one penny less than the asking price (which was simply too high; and the house had not been on the market long at all). My buyers walked away from the deal, so it was not a “win” for anyone.

This last example came with another pricing problem. The sellers had just reduced the asking price by $40,000, so, in their minds, they had already come down by that much. The reality is that they hadn’t come down at all; the home was really being repriced more in line with what the market might hold. As my first broker used to say, you can’t lose what you never had. What if they had listed it first at $100,000 more? Would that mean they came down by $100,000? No, it doesn’t. The market was very clear that the house was not worth that price. It is still on the market.

Pricing is not a random number – from either the seller’s or the buyer’s perspective. Market value is the price at which the seller is willing to sell and a buyer is willing to buy.