Market value, market price, and the characteristics of value

Value, price, and cost

Market value is an opinion of the most probable price a property should bring in a competitive, open market under normal sale conditions as of a specified date. It assumes informed, willing parties acting in their own interests, neither under undue pressure, reasonable market exposure, and cash or cash-equivalent terms.

Market price is the amount actually paid. Asking price is the seller's request. Cost is the amount spent to acquire or produce something. These figures need not equal market value. An arm's length sale involves independent parties pursuing their own interests and can provide strong evidence of value. A family discount, unusual financing, or urgent sale can produce a different price.

For example, market evidence may support $300,000 while the owner asks $320,000 and sells to a relative for $270,000. The market price is $270,000; the supported value estimate is a separate conclusion. An improvement's cost does not establish its contribution to value.

Four characteristics: DUST

• Demand: desire backed by purchasing power. Interest without ability to pay is not effective demand.
• Utility: capacity to satisfy a need, such as a useful floor plan.
• Scarcity: limited supply relative to demand. Rarity without buyers does not establish high value.
• Transferability: ability to convey ownership rights. A title problem can impair it despite strong buyer interest.

Value depends on the interest valued, effective date, and assignment conditions. Sentimental attachment or a particular investor's special advantage does not by itself establish what typical buyers will pay. Identify whether the question asks for a probable market amount, an actual sale amount, an expenditure, or a characteristic of value.