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Is Sales Price the same as Market Value?

by Administrator on Dec 3, 2018 Property Appraisal 10 Views

It’s an easy answer if you think about it, no.  There are many reasons why the sale of a real property may be transacted above or below a price that it would normally have sold for.  An appraiser assumes as part of their market value definition that there are willing buyers and a willing sellers and typical market conditions.  If you find that a property considered for use as a “comparable” sold for substantially more than other properties there may be an atypical motivation on the part of the buyer.  Thus the buyer may have paid more for a property because the buyer was trying to assemble a large site in fact they may already own the adjoining site.

If a real property is sold below its expected market value, there could be atypical motivations on the part of the seller.  Some sellers don’t want to wait for a typical marketing time they don’t want to wait for the right buyer to come along during a typical marketing time they just want to “cash out.”  That type of motivation will typically lower the sales price.  If typical marketing time is for example 6 to 12 months and they want a sale in 30 days there is a good chance that they are going to have to take less money to make it happen.

There are a number of reasons why the sales price of a property can be different than its market value.  There may be trade fixtures included in a building or other furniture, fixtures and equipment (FF&E) and there may even be a valuable business entity that was included in the sale.  Most real estate sales specifically exclude FF&E and business enterprise items since non-realty items are taxed and depreciated differently. 

Personal property is by definition not “fixed” in place and thus it can be moved.  Trade fixtures can sometimes be removed by a tenant when they leave, but if abandoned they become part of the real property.  Some trade fixtures left by a past tenant can greatly enhance market value, like quality flooring and office finish, while in other cases it can negatively influence a valuation.

Appraiser consider existing improvements but they must be aware of the fact that many new tenants don’t want the improvements made by a past tenant, so while an owner may think his building value has increased dramatically due to the improvements the next potential tenants may reject it because of those same improvements.

A market value considers whether the interest being appraise is a fee estate, a leasehold estate, a leased-fee estate or a going-concern.  You have to actually read an appraisal report to see what was valued.  A going-concern value for example includes the entire business operation which includes the real property and its business enterprise value (all intangible assets).  A going-concern value is focused on the net operating income that is generated and is expected to be generated by the business over time, thus appraisers analyze past, current and future (forecasted) cash flows.

Buyers and sellers of real property often have heard of high or low sales in the market and immediately point to them as examples of where the market value for a specific property should be.  Just because you can find a property sale at $ 200 per square foot (SF) doesn’t mean that a subject property has a similar value.  I am always open to investigating sales that are provided but it is unusual to find that an owner has provided the best data.  It happens, just not often.

Thus, sales prices can reflect market values generally but market participants having and / or offering specific sales price examples to an appraiser, that they imagine are compelling evidence, may not be the best available.  When the evidence is on single-family residential homes that they know are on their block and model matched properties the data may prove to be useful, if it’s information on the sales of industrial buildings, for example, the information may not be useful at all.

For more appraisal information contact Glenn J. Rigdon MA, MRICS, IFAS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or http://www.horizonvillageappraisal.com, or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

Article source: http://www.appraisalarticles.com/Real-Property-Appraisal/4718-Is-Sales-Price-the-same-as-Market-Value.html

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