Market value is what a buyer is willing to pay for Real Estate, and the Seller is willing to accept in exchange of the title of the property without any undue pressure. The last point is that there should be no stress or pre-condition with either of Seller or Buyer, and that is the market value of a property.

The market value is always as-of-date, and it keeps changing with the market; it is seldom constant. However, saturated real estate markets might continue at the same level for a broader duration. Therefore, market value might give an impression that it is constant for a given period.

Market value is determined by carefully examining the subject and then finding similar comparable sales which have been sold in the last 60-90 days with similar type/style/age in the same community. If the market is dynamic and changing rapidly, it might call for selecting an even shorter duration and recent sales to arrive at market value accurately. After finding the comparable sales, the next step is to perform positive and negative adjustments for additional or missing features in the comparable in relation to the subject. The final aggregation of such adjustments for the comparables will provide us with fair market value.

Another essential point to remember is that the more comparable sales we can find, the more accurate and reliable fair market value would become.
Let us try to understand this with an example. Let us regard we want to arrive at fair market value for a 2-storey 3-Bedroom Detached home in 1,500-2,000 sq ft bracket above grade of space. And we are able to find 6 2-storey 3-bedroom detached homes of similar square footage and age in the immediate neighbourhood of the subject, all of which have sold in the last two months. The median sold price of these properties is coming at $780k. And there is one 3-bedroom detached which has sold in previous two months in the same area at $850k; that doesn't mean that fair value of the subject becomes around $850k, the reason is that majority of the houses are sold sub $800k and that we have to ensure as a buyer.

Why is Fair Market Value important?

1) As a buyer, determining the fair market value helps us retain our immunity in the market where we do not overpay for a property, and when the market saturates, we do not come into stress. On the other hand, if, as a purchaser, we get emotional about the purchase and overpay for a property, it will take away our immunity. If suppose market turns other way we might be forced to execute a distress sale. To avoid this situation, your realtor has a critical role to play in evaluating the as-of-date fair market value and ensuring that your purchase is within reason and you are safeguarded.

2) As a Seller, it is equally critical to arrive at the fair market value correctly for the property we are trying to dispose and pitch it fairly to the market. The reason is that when we list a property on a Multiple Listing Service, we should make every effort to present it well, market it comprehensively, and price it fairly. These three things will ensure that buyer prospects exposed to the property are seeing value in the property. The ideal situation in a Real Estate transaction is where both buyers and sellers are happy and willing to make the purchase. Both see value in what they are giving and what they are receiving. This will be possible when the Seller evaluates the property without getting emotional. If we don't list it rationally, the buyer prospects don't see enough value in the property, and the listing becomes stale with inactivity. At this time, the new buyers coming to the market don't reciprocate positively for the property. Instead, the buyers feel there might be an issue with the layout/location of the property due to which it is standing on the market. Eventually, what ends up happening is that the property sells for even less than the fair value, and we lose money on the table that the property deserved.

Wish you all the very best! Reach out to our dedicated team at Elixir for any queries you have in Real Estate and we will do our best to help.


Mudit Mehta
Broker of Record
ELIXIR REAL ESTATE INC.
Off: 416-816-6001 | [email protected]