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Market Value

Quite simply, your house is worth what someone is willing to pay for it, regardless of what improvements you may have made to it or what it cost you to build or buy. Market value, according to the Appraisal Institute of Canada (AIC) is “The most probable price in terms of money which a property should bring in, in a competitive and open market, under all conditions required to a fair sale. Implicit in this definition is the consummation of a sale as of a specific date and the passing of title from seller to buyer under conditions whereby:

• Buyer and seller are typically motivated;
• Both parties are well informed or well advised, and each acting in what he considers his own best interest;
• A reasonable time is allowed for exposure in the open market;
• A payment is made in terms of cash in Canadian dollars or in terms of financial arrangements comparable thereto.”

Market value is not to be confused with selling price. In the best of all possible worlds -- that is, given an efficient marketing system, willing and informed sellers and buyers, a reasonable selling period and no undue influences -- market value tends to align fairly closely with selling price, but that may not always be the case. How then do professionals determine market value? Well, they can't determine it, but they can estimate it, using as their basis successive selling prices in comparable homes.

So, for a simplistic example, an appraiser trying to estimate the market value of a home would analyze the neighbourhood and identify the three most pertinent properties that sold within the immediate area over the past few months through arm's length transactions (i.e., not through "undue influences", such as a transaction that might take place as an inter-familial transaction or through Power of Sale). Given their selling prices, he or she would then make various adjustments to the properties in order to estimate the subject’s market value (what it is worth). For example, perhaps Comparable A had a newly renovated kitchen, while Comparable B was in the process of sliding down a ravine and Comparable C has a wet basement – these elements have probably played a part in determining how much each house sold for. Accordingly the market value of those comparables should reflect those adjustments – i.e., Comparable A would be “worth” more than Comparables B and C. The REALTOR® then estimates the approximate value of each adjustment.

Based on these adjusted sales prices and other factors and using the direct comparison approach, the appraiser would then come up with a market value for the home in question in a range between $183,500 to $186,000, most probably $185,000.

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This information is provided by the London and St. Thomas Association of REALTORS®.
The information herein is believed to be accurate and timely, but no warranty as such is expressed or implied.