Market value

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For values of entire markets, see Market size.

Market value or OMV (Open Market Valuation) is the price at which an asset would trade in a competitive auction setting. Market value is often used
interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may differ in some
circumstances.
Contents
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1 Definition

1.1 Relativity of market theories

1.2 Overpricing and underpricing

2 Real estate
2.1 Other definitions

2.1.1 Liquidation value

2.1.2 Orderly liquidation value

2.1.3 Federal land acquisition

2.1.4 Going concern value

2.1.5 Use value

3 Economic value and Investor confidence

4 Legal Interpretation

5 References

Definition[edit]
International Valuation Standards defines market value as "the estimated amount for which a property should exchange on the date of valuation between a willing
buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without
compulsion."[1]
Market value is a concept distinct from market price, which is the price at which one can transact, while market value is the true underlying value according to
theoretical standards. The concept is most commonly invoked in inefficient markets or disequilibriumsituations where prevailing market prices are not reflective of
true underlying market value. For market price to equal market value, the market must be informationally efficient and rational expectations must prevail.
Recently, Mocciaro Li Destri, Picone & Min (2012)[2] have underscored the subtle but important difference between the firms capacity to create value through
correct operational choices and valid strategies, on the one hand, and the epiphenomenal manifestation of variations in stockholder value on the financial markets
(notably on stock markets). In this perspective, they suggest to implement new methodologies able to bring strategy back into financial performance measures.
Market value is also distinct from fair value in that fair value depends on the parties involved, while market value does not. For example, IVS currently notes fair
value "requires the assessment of the price that is fair between two specific parties taking into account the respective advantages or disadvantages that each will
gain from the transaction. Although market value may meet these criteria, this is not necessarily always the case. Fair value is frequently used when undertaking
due diligence in corporate transactions, where particular synergies between the two parties may mean that the price that is fair between them is higher than the
price that might be obtainable in the wider market. In other words "special value" may be generated. Market value requires this element of "special value" to be
disregarded, but it forms part of the assessment of fair value. [3]

Relativity of market theories[edit]

Readers should realize that Market Value is not exact science, but an introduced concept from individuals and companies as a business tool. Value is subject to
seller and buyer's perception and interpretation of parameters that they decide to take into consideration, while other people usually refer to their very own
perceptions and interpretations of what those people think is important. Any whatever article should be explained in this context, because people pay what they
want in spite of whatever advice.
Local, regional, national, international? Considering that Market Price is what people agree to pay for something at a given moment at a given place, it is important
to underline the importance of the time and place range wherein sellers and buyers meet. The Local and Instant Market Value of a specific item is exactly the same
as the Local Market Price. And if several people want the same thing while there is not enough for everybody that wants it, Market Value and Market Price are
identical. It is wrong to state that things have any stand-alone value, because value depends upon transactions. No transaction means zero value, whatever value
estimation or selling price expectation. When a lot of popular items in a place is almost sold out, sometimes people are willing to pay more than the asking price
rather than spend time and effort to get it cheaper elsewhere. Is the paid price then Market Value or Market Price? Both.

Overpricing and underpricing[edit]

These two words are used to say that a price is too high or too low in regard to the expectations of an individual or a group. It is a matter or comparison to personal
expectations or/and some comparison tool as a chart, table, formula that is agreed upon and set forth as a common viewpoint by those people. Overpricing and
Underpricing statements are valid if related to the used comparison origin but irrational without such a basis. More often than not, these statements are purely
emotional without any valid reference.

Real estate[edit]
The term is commonly used in real estate appraisal, since real estate markets are generally considered both informationally and transactionally inefficient. Also,
real estate markets are subject to prolonged periods of disequilibrium, such as in contamination situations or other market disruptions.
Appraisals are usually performed under some set of assumptions about transactional markets, and those assumptions are captured in the definition of value used
for the appraisal. Commonly, the definition set forth for U.S. federally regulated lending institutions is used, although other definitions may also be used under
some circumstances:[4]
"The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair
sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition
is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are
typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed
for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto;
and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by
anyone associated with the sale."
USA, Licensed or Certified Apppraisers may be required under state, federal, or local laws to develop appraisals subject to USPAP Uniform Standards of
Professional Appraisal Practice. The Uniform Standards of Professional Appraisal Practice requires that when market value is the applicable definition, the
appraisal must also contain an analysis of the highest and best use as well as an estimation of exposure time. All states require mandatory licensure of
appraisers.
It is important to note that USPAP does not require that all real estate appraisals be performed at market value. Indeed, there are frequent situations when
appraisers are called upon to appraise other values. If a value other than market value is appropriate, USPAP only requires that the appraiser provide both
the definition of value being used and the citation for that definition.

Other definitions[edit]
Market value is the most commonly used definition of value in real estate appraisal in the United States because it is required for all federally regulated
mortgage transactions and because the International Association of Assessing Officers (IAAO) has accepted it for use in property taxation. However, real
estate appraisers use many other definitions of value in other situations.[5]
Liquidation value

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