As an FYI for any readers, this is Fannie Mae’s definition of market value, which is contained in the Fannie Mae appriasal form (1004) that is used for most conventional loans:
Market value is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he considers his own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
Examples: If you sell your house and include your red corvette in the garage as part of the sale, it probably wouldn’t fit the definition above because the buyer very likely paid a higher price for the house because of the machine parked in the garage (#5). Or if there are $50,000 of concessions contained in the purchase price, chances are that the buyer paid more for the house to get the benefit of money back, right? (#5) Or if a property is listed on the market for 1 day only, it may have been under-priced and not reflective of the market, right? (#3) (not always the case if a property goes quickly, but often so). Or consider when a family member sells to another family member and how the sales price is often much lower than it would have been if a non-family member purchased the house. This would very likely not be an arms-length transaction where each party is acting in his own best interest (#4). Or imagine a couple is getting divorced and they need to sell their house quickly. The house sells $30,000 below other recent sales in the neighborhood and so it does not fit the definition of market value (# 2 & # 3). These are the types of issues that appraisers must consider constantly (and these are the reasons why speaking with local Realtors is a crucial part of our job. Having reliable and accurate information leads to better appraisals).
If anyone has questions, feel free to contact me at 916-595-3735 or www.lundquistcompany.com