If you're new to the world of real estate, you may not be familiar with the difference between market value and market price. Don't worry - we've got you covered! In this article, we'll break down the distinction to make it easier for you to navigate the real estate market.
Market Price
Let's start by looking at the concept of market price. The market price of a property is the amount that a willing buyer is ready to pay, and the amount that the seller is willing to accept. Unlike market value, which we'll discuss later, market price is relatively straightforward to determine. It is mainly influenced by the condition of the property and boils down to the actual selling price.
Market Value
The market value of a property, on the other hand, takes into consideration various factors to estimate what the property would sell for. In other words, it reflects the worth of the property. There are several factors that determine the market value of an investment property.
Benefits
One crucial factor that contributes to a property's market value is its benefits. For example, let's consider a ground floor apartment compared to a penthouse apartment. Depending on the location, the ground floor apartment may have less privacy, natural light, and more street noise and security concerns. In contrast, the penthouse apartment offers more privacy, natural light, and fewer security issues due to its top-floor location. These benefits increase the market value of the penthouse apartment compared to the ground floor unit.
Property Features
Additional features of a property, such as a deck, backyard, or energy-efficient windows, can significantly increase its market value. However, certain features may have the opposite effect. For example, an apartment building with only stairs and no elevator might decrease the market value.
The Housing Market
The supply and demand dynamics in the housing market also impact the market value of a property. In a buyer's market, where there is high housing supply and lower demand, the market value tends to be lower. Conversely, in a seller's market, where supply is limited, and demand is high, the market value of properties increases. Researching the local real estate market data will provide valuable insights into the market conditions you're working with.
To determine the market value accurately, it's essential to analyze comparable properties. By comparing your investment property's features with similar properties in the area, you can identify its unique selling points and areas of improvement. Utilizing real estate comparables (comps) is a valuable tool for this analysis. When examining real estate comps, investors typically look at three comparable recently sold properties within a 1-3 mile radius, considering factors such as property type, size, number of bedrooms, and major features.
Performing a Comparative Market Analysis (CMA) or a real estate comp analysis will assist you in determining the market value of your property.
Market Value vs Market Price: Real Estate Investment Tools to Use
Comparing market value to market price can be complex since market value is subjective and varies from person to person. Let's revisit the example of the ground floor apartment vs the penthouse apartment. While the penthouse apartment may generally be perceived as having greater value, someone with a wheelchair may prefer the ground floor apartment if accessibility is a concern. Similarly, a single mother might find the ground floor apartment more desirable due to easier access for managing young children.
To overcome the challenges of determining property prices and values, it's crucial to conduct proper real estate market value and market price analyses. A Comparative Market Analysis (CMA) or property valuation can provide a detailed understanding of a property's current value. Mashvisor offers powerful tools that can assist you in researching house prices and conducting a real estate market analysis.
Things to Consider
It's important to note that a property's value is not always equal to its price. In certain situations, sellers may be distressed and need to sell quickly at a price below market value. Additionally, uninformed sellers may undersell their property if they are unaware of its true value. This presents an opportunity for buyers to secure a great deal on an investment property with high market value but a lower market price.
In conclusion, market value and market price are interconnected. Understanding the market value of a property is crucial for setting the right market price. By utilizing Mashvisor's tools and conducting thorough market analyses, you can ensure that you have an accurate understanding of your property's value.
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