Market value

Key Takeaways

• Market value is an opinion of the most probable price a property should bring in an open, competitive sale, not a record of the price one buyer happened to pay.
• The willing-buyer, willing-seller test assumes both parties are informed, neither is under unusual pressure, and the property has had reasonable exposure to the market.
• Market price is the amount a property sold for, and it can differ from market value when the sale was rushed, forced, or between relatives.
• Cost, assessed value, and list price are three different figures, and none of them establishes market value.

What It Means

Market value is an estimate of the most probable price a property should bring in a competitive and open market, where a willing buyer and a willing seller each act knowledgeably and neither is under unusual pressure. It is an opinion about what should happen, not a record of what did happen.

Four conditions sit behind that opinion. Buyer and seller are each typically motivated rather than desperate. Both are reasonably informed about the property and about the market. The property is exposed for sale for a reasonable length of time. Payment is made in cash or its equivalent, with no unusual financing or seller concessions inflating the figure.

Take any of those conditions away and the number that results stops describing value. A rushed sale to settle an estate, a transfer between family members, or a purchase by the one neighbor who needs that particular lot can all close at a real, recorded price. That price is Market Price, the sum one buyer handed over in one transaction. Market value is the broader judgment about what a typical informed buyer would pay, and the gap between the two is where most appraisal questions on the license exam live.

How It Works in Washington

In Washington, three different people estimate market value for three different purposes, and a broker who blurs them invites a complaint.

The county assessor values property for taxation. RCW 84.40.030 directs that all property must be valued at one hundred percent of its true and fair value in money and assessed on the same basis unless specifically provided otherwise by law. The figure that comes out of that process is Assessed Value, and it is a tax number produced by mass valuation.

A credentialed appraiser produces an Appraisal for a lender, an estate, or a court. RCW 18.140.020(4) restricts that work to credential holders: a person who is not certified, licensed, or registered under chapter 18.140 RCW may not prepare any appraisal of real estate located in this state.

A licensed broker gives a client an opinion of price. RCW 18.140.020(2) permits compensation for a broker's price opinion prepared by a real estate licensee under chapter 18.85 RCW, and in daily practice that opinion is delivered as a Comparative Market Analysis. It is a supported opinion of what the market will pay. It is not an appraisal, and it should never be described to a client as one.

Example

Dana lists a three-bedroom rambler in Renton. Her broker, Miguel, studies recent neighborhood sales and recommends a price of $585,000. The county assessor's value on the tax statement for the same year is $512,000.

The house goes on the market, draws eleven showings in three weeks, and Dana accepts $579,000 from an unrelated buyer using a conventional loan. The lender's appraiser reports an opinion of value of $580,000.

Market value here is about $580,000. Three independent estimates land within roughly one percent of each other, on a sale that was openly marketed between strangers. The $512,000 assessment is not market value; it is a taxation figure produced on a different basis for a different purpose. Now change one fact. Had Dana instead sold to her brother for $430,000, the price would be entirely real, but the sale would not have been made between a willing buyer and a willing seller acting free of pressure, and no appraiser would treat it as evidence of value.

Common Mistakes and Exam Traps

• Market price is a completed fact, the amount paid at closing. Market value is an opinion of the most probable price. Exam questions swap the two deliberately.
• Cost does not equal value. A seller who spent $90,000 installing a pool has not necessarily added $90,000 of market value.
• Assessed value is set for property taxation and is not evidence of market value in a sale negotiation.
• A forced sale, a foreclosure sale, or a sale between relatives fails the willing-buyer, willing-seller test, so it does not establish market value.