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Real estate agents typically use fair market value to determine a price or price range at which a home will sell when working with a seller or buyer to devise a listing or offer strategy.
Market value is the most commonly used type of value in real estate appraisal in the United States because it is required for all federally regulated mortgage transactions, and because it has been accepted by US courts as valid. However, real estate appraisers use many other definitions of value in other situations. [5]
The fair market value of property is the price at which it would change hands between a willing and informed buyer and seller. The term is used throughout the Internal Revenue Code , as well as in bankruptcy laws, in many state laws, and by several regulatory bodies.
There are several types and definitions of value sought by a real estate appraisal. Some of the most common are: Market value – the price at which an asset would trade in a competitive Walrasian auction setting. Market value is usually interchangeable with open market value or fair value. International Valuation Standards (IVS) define:
Even if the house is not razed and the site sold as a commercial lot, the highest and best use is the commercial lot use. The market value of the property is driven by this hypothetical conversion, even if it never takes place, due to the utility that this potential conversion would bring to a purchaser.
Home equity is the market value of a homeowner's unencumbered interest in their real property, that is, the difference between the home's fair market value and the outstanding balance of all liens on the property. The property's equity increases as the debtor makes payments against the mortgage balance, or as the property value appreciates.
Market value is the prevailing, but not exclusive measure of determining the just compensation owed to a landowner under the Fifth Amendment. Fair Market Value is defined by appraisers as the most probable price, in terms of cash that would be paid by a willing buyer to a willing seller, each being fully informed of the property's good and bad features, with the property being exposed on the ...
The 2007 edition of International Valuation Standards (IVS 2007) re-states the International Financial Reporting Standards definition of 'value-in-use', which would allow for either a higher value than market value or a lower value than market value: Value in Use The present value of the future cash flows expected to be derived from an asset or ...