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How Market Value Is Calculated.

Real Estate Market Value - Resider

Market Value – “The most probable price, as of a specified date, in cash, or in terms of equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.

Vast sums of debt and equity are committed each year to real estate investments and mortgage loans, which are based on market value. This opinion of value is based on objective observation of the collective actions of the market.

The definitions of market, price, and cost, reveal how they are interrelated:

Market – ‘Set of arrangements that brings a buyer and seller together through the price mechanism. A real estate market is the interaction of individuals who exchange real property rights for other assets such as money.’

Price – ‘The amount a particular purchaser agrees to pay and a particular seller agrees to accept under the circumstances surrounding their transaction.’

Cost – ‘Amount required to construct, reproduce, or replace the property.’

There is also a notable difference between 'assessed' value and 'appraised' value.

Assessed value refers to the value of a property according to the tax roll, which may not conform to market value, but does use similar principles. Assessed values are only recorded annually by BC Assessment, and are periodically raised to match the revenue needed to pay for public services. Homeowners often rely too heavily on these values when negotiating price.

Appraised value, on the other hand, is a formal opinion of value at a specific point in time, intended to be relied upon by financial institutions so you can be granted a mortgage. It involves an appraiser performing selective research into the relevant market area, acquiring data on recently sold properties that are similar to the subject property, and adjusting for the differing characteristics. Contributors to a property’s value can be; lot size, square footage, upgrades, renovations, and of course location and view. Both assessed and appraised values can be disputed if you are confident that they are wrong.