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What is market value?

Wednesday, 6th Jun 2012

for sale

Being able to determine a property’s market value is a useful skill when it comes to investing in property. We explain the concept of “market value,” and how to spot an investment bargain.

Astute investors always keep a careful eye on property values in the areas in which they are interested in. This way, they can avoid paying too much for a property and can always be in a position to distinguish a bargain.

So what is market value? In general terms, the market value of a good or service is the price at which a willing, but not anxious, buyer will pay to a willing, but not anxious,  seller for that good or service.

For products which are plentiful, transacted often, and are largely the same as each other, determining market value is relatively easy. But property is typically not like this. Each property tends to have features that make it unique in the market – its location, size, age, etc. Even two properties side by side on the same street will be valued differently if they differ in size or age. To make things even trickier, property is typically not transacted very frequently, making it hard to compare a property you are interested in to a similar one that has sold recently.

Fortunately there are a number of information sources available to make your estimates of market value as accurate as possible. It’s also a good idea to drive through the neighbourhoods you are interested in and check with real estate agents the prices that recently-sold properties fetched.

There are many situations in which a property can be purchased under the market price and if you are able to get a good estimate of market value you will be able to identify the bargain buys. It will also prevent you from over-paying for a good investment property.