How do you determine market value now?

Question

I'm assuming market value equals sales price.  I keep hearing how you can buy property 50-60% under market, but I can't help but think that they are comparing to pre crash prices.  Maybe the lower priced homes haven't fallen as much to the higher priced ones.  Given the more restrictive appraisal guidelines, flood of foreclosures and other distressed sales, and tougher financing available, it seems that when we talk market value, it should be what similar product is selling today, not last year.

Cary Donham · Answer

Let me go just a little bit deaper here..... Dan is correct when he says true market value is what someone is willing to pay for it.

However this would be the case for cash buyers not someone who needs a mortgage.  When there is a mortgage involved you will need an appraisal.  Appraisers look at comparables.  This means houses like you said of similar product sold in the last 3 - 6 months in the same neighborhood or very close within the same square footage and having similar features etc....

For conventional loans there is another issue now with HVCC (Home Valuation Code of Conduct) being passed as law.  As a lender you can no longer choose your appraiser.... they have to ordered through companies who use the next available appraiser in line.  This means you could get a guy that is green in the field (very likely) because they aren't paying the appraisers the full amount of the appraisal as when we would order it ourselves.  That money now has to be split with the company that is overseeing the appraisal order.

They did this to try and prevent over inflation of house prices but what is happening now is these appraisers are coming in and just whipping out the appraisal without any care for accuracy in some instances and devaluing the house and/or neighborhood.

Use comparables on MLS because zillow and other websites like this can be off quite a bit.  They should really only be used as a first tool not the final decision.  It's the most accurate way I know to valuate a property.

Dani Beit-Or · Answer

Very good question and a tricky one it is. Here are couple of suggestions:
1. What someone is willing to pay and sell a property - true market value!
2. Use an appraiser
3. Web sites such as zillow.com
4. how much would it cost to build such house in this area today.

Hope it helps
Dan