What is the definition of ‘Market Value’ and why is it important?

Video Transcript

The RICS definition of market value is the estimated amount for which an asset or liability should be exchanged on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties have each acted knowledgeably, prudently and without compulsion. This definition highlights key aspects of the market value. Most importantly, it is an estimated amount, not necessarily the actual sales price. The transaction must involve a willing buyer and seller, meaning both parties agree freely without pressure. It occurs in an arm’s length transaction, meaning the parties are independent, and there is no special relationship influencing the price. Both parties act knowledgeably and prudently, indicating that they are informed and making rational decisions based on the property’s condition, market conditions and other relevant factors. The transaction occurs without compulsion, meaning there is no forced sale, such as in cases of financial distress. Market Value is essential because it provides a clear, standardised estimate of a property’s worth under normal conditions, which is crucial for various financial and legal purposes. It is worth noting that this is just one basis of valuation. Lenders often ask for valuations under special assumptions, for example, vacant possession value restricted marketing periods of 180 and 90 days. Values can differ significantly depending on what basis a lender requires.