Pretty simple. It is what a ready, willing and able buyer is willing to pay.
It has to be all 3. Not 1 out of 3, not 2 out of 3. All 3.
Too many times when I have gone to list a house, a seller tells me how they have or had an offer from somebody they know or a friend of a friend that is waaaaay over what the house is worth.
I start asking questions. Most of them end with replies like:
“They had to sell their old house first.”
“They had to get preapproved.”
“They have to wait to file their tax returns.”
“They haven’t returned my call from last week yet…..”
It always breaks my heart to tell these sellers that their Buyer is not ready, is not willing, and is not able to buy their house. These people are not buyers. I call them Dreamers. It is easy to make a high offer if you’re never going to buy the place.
Another thing on market value. It’s what most ready, willing and able buyers will pay. Out of 100 buyers, probably something like 98 will all think a property is worth the same. Those last two buyers are the oddballs. There is always one person who thinks eveeeeeeeeeerything is overpriced. And then there is that one buyer who will pay too much. This of course is the one ever seller wants, but in 14 and a half years of being a realtor, I have only come across a few of these buyers. LOL, they are usually the ones who go way over the list price or make a full price offer on an overpriced listing…..making me look bad to my client.
A house I was going to flip is a perfect example of this. I put this place on the market for, I think, something like $138,500 because that was what the recent sales showed. I got 7 offers. One was for $122k. One was for $143k. The others were a little over the list price because there was nothing for sale in that price range at the time and they all knew there were other offers. The 5 offers were all within $500 apart. That was probably market value since 5 buyers independently came up with pretty much the same value.