Market Value

An appraisal must include the current market value of the property in its actual physical condition and subject to the zoning in effect as of the date of the appraisal.  For properties where improvements are to be constructed or rehabilitated, the Bank may also request a prospective market value based on stabilized occupancy or a value based on the sum of retail sales.  However, the sum of retail sales for a proposed development is not the market value of the development.  For proposed developments that involve the sale of individual houses, units or lots, the appraiser must analyze and report appropriate deductions and discounts for holding costs, marketing costs and entrepreneurial profit.  For proposed and rehabilitated rental developments, the appraiser must make appropriate deductions and discounts for items such as leasing commissions, rent losses, and tenant improvements from an estimate based on stabilized occupancy.

“Market value” means the most probable price 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 knowledgeable, 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:

•        Buyer and seller are typically motivated;

•        Both parties are well informed or well advised, and acting in what they consider their own best interests;

•        A reasonable time is allowed for exposure in the open market;

•        Payment is made in terms of cash in U.S. 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.

An appraiser typically uses three market value approaches to analyze the value of a property -- cost, income, and comparable sales -- and reconciles the results of each to estimate market value.  An appraisal will discuss the property’s recent sales history and contain an opinion as to the highest and best use of the property.