New to the real estate world? Then you might not know the difference between market value vs market price. We’ve broken it down for you to make it easier!
If you’ve been looking for information tailored to real estate investing for beginners, you’ve come to the right place. Whether you are buying an investment property and are looking for insight, or are a new real estate agent selling an investment property and need help setting the price, you will find the help you need here. In order to discuss real estate market value vs market price, we will go into detail about each one individually and make comparisons as we go along.
Market Price
First, let’s look at the market price. The real estate market price is the amount that a willing and ready buyer will pay and what the seller will accept for a property. The market price is a bit simpler than the market value in that it is easier to set. Market price is mainly determined by the investment property’s condition. The market price boils down to the amount the real estate property will sell for.
Market Value
The market value of a property is the estimated amount, or opinion, of what the real estate property would sell for taking into consideration its value. Another word for value here could be ‘worth’. What are the things that determine an investment property’s worth?
1. Benefits
In this case, the value of a real estate property would include its benefits. One example of the different benefits of an investment property might be if it is a ground floor apartment vs a penthouse apartment. Depending on the property’s location, a ground floor apartment might have less privacy, less natural light, more street noise, and security issues. The penthouse apartment, on the other hand, will have more privacy and natural light with less noise and fewer security issues just because it is on the top floor. Having a rental property on the top floor would increase its market value because of those benefits compared to the ground floor apartment.
2. Property Features
Added features of real estate properties can include having a deck, a backyard, energy-efficient windows, etc. Having these features will definitely increase the market value of a property. Some investment property features might decrease the market value, however, like only having stairs and no elevator in an apartment building.
Related: What Are the Features of the Best Investment Property?
3. The Housing Market
Here we look at the supply and demand of real estate properties. In a buyer’s market, the housing supply is high and there aren’t enough buyers in the market, so demand is less. The market value of a property will definitely be lower. However, in a seller’s market, supply is much lower than the buyer’s demand. This will automatically increase the market value of the properties available in that area. Make sure to research real estate market data in your area to have a better idea of the market conditions that you are working in.
Another good indicator of market value is similar properties and what value they have. By looking at other properties, you can compare which ways your investment property’s features outweigh them or in which ways they lack. A specific tool to help with this is real estate comparables (real estate comps for short). When studying real estate comps, property investors tend to look at 3 comparable recently sold properties in the area:
- Comparable means choosing the same kind of property (apartment, condo, single-family home), regarding size, the number of bedrooms, major features, etc.
- Recent usually means a real estate property that was sold in the last 3 months.
- Searching for a property in the same area is trying to find something within a 1-3 mile radius of your investment property.
Doing a real estate comp analysis, also known as a comparative market analysis (CMA), will assist you in gauging the market value for any real estate property.
Market Value vs Market Price: Real Estate Investment Tools to Use
Comparing market value vs market price requires a lot of work. Market value is more complex than market price because market value is subjective to different people. This means that what one person may see as a great value, another may not.
Let’s go back to the previous example of the ground floor apartment vs the penthouse apartment. While generally, it seems that the penthouse apartment has a greater value than the ground floor apartment, someone with a wheelchair might disagree, especially if there isn’t a quality elevator and instead there is poor access into the building. A single mother might also see the ground floor apartment as more desirable because of easier and quicker access if she had younger children to manage.
You must be wondering how to decide on property prices and values if there are so many different variables. As mentioned, a CMA will help you research a real estate property’s current value in great detail. This is also called property valuation.
Related: How to Perform a Real Estate Market Analysis
Property valuation is the process of determining the economic value of a real estate investment property. To calculate property value often includes the fair market value of a real estate property and the willing selling price from the seller. Real estate investors can perform their own property valuation. That’s where Mashvisor’s tools come in. We have CMA real estate investment tools that can be extremely beneficial for anyone in the housing market looking to determine house prices.
Related: What Do You Need to Know About Real Estate Property Valuation?
You can also seek out a professional certified appraisal as well.
Things to Consider
It is important to point out that a property’s value is not always equal to its price. For example, in some cases, a seller is distressed and must sell the property right away even if the price is below market value. Or, uninformed property sellers might sell a home for a price that is lower than what it is worth. If sellers don’t know the house value, then they could undersell and lose profit. In this case, however, property buyers might get a great real estate deal if they buy an investment property with high market value for a low market price.
Put simply: market value vs market price is the investment property’s worth vs the amount it’s being sold or purchased for. Make sure you’re getting an accurate number by doing proper real estate market value analysis and real estate market price analysis using Mashvisor’s tools. In the end, market value and market price are intertwined; in order to set the right market price, you need to know your property’s value.
Sign up for Mashvisor today to get your hands on readily available real estate comps!