Appraisal Ace Blog

An agent recently complained that appraisers did not know how to value properties.
June 28th, 2011 4:45 PM


The agent was concerned because he felt that appraisers should value a property at the highest price that a buyer would pay.

This was my answer to him-

I appreciate your comments on current problems with appraisals. I too have noticed that some appraisers tend to undervalue properties, which is just as wrong as overvaluing a home, but I disagree with your definition of market value.

The highest price that a buyer is willing to pay is not market value, it is the price for that specific transaction. 

Market Value
is the estimated amount for which a property should sell on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing with both parties acting knowledgeably, prudently, and without compulsion. In other words, market value is the most probable price that a property should sell for to a typical buyer. That is the value that appraisers are obligated to discover.

It is important to distinguish between Market Value and Price. A price obtained for a specific property during a specific transaction may or may not represent that property's market value. Certain considerations may have been present, such as a special relationship between the buyer and the seller.

Another possibility is that a specific buyer may have been willing to pay a premium over and above the market value, if his subjective valuation of the property was higher than the Market Value. I am sure you have had a buyer that "just had to have" that particular house, even though it may have been priced higher than Market Value.

Posted in:General
Posted by William McKnight on June 28th, 2011 4:45 PMPost a Comment

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