What Is Market Value (1)

 

No one wants to pay too much for a home. Yet, some buyers inadvertently over-pay for their home by over-improving it relative to its market value. Although property improvements gener-ally do increase a property's value, there's no guarantee that each dollar invested will increase the property's value by an equal amount.

One homeowner found out the hard way that his renovations did little to increase the value of his property. By his calculations, his property was worth the amount he paid for it plus the costs of improvements. But, when he listed his home for sale according to this formula, no one was willing to pay the price. The market had declined since he purchased the property. So even though he had improved it at considerable expense, his home sold for less than he paid for it.

To keep from making this mistake, it's important to understand the distinction between market value and cost. The market value is the most probable price a property will command if it's ex-posed on the open market for a reasonable period of time, assuming that both buyer and seller are well-informed and neither party is acting under undue pressure.

The market value may or may not be equal to the amount it cost to build the property. Even in a new home development, where similar homes cost the same amount to build, you'll find a varia-tion in market value depending on such factors as whether or not a home has a view or is lo-cated on a busy street. A view, for example, usually adds value to a property. And buyers gener-ally pay less for a home that's located on a busy street. The location on a busy street lowers the value of the property.