Certified Residential Appraiser Practice Exam

Which of the following best defines market value?

1. The highest price at which a property can be sold

2. The cost to replace the property

3. The most probable price for which the property would sell under normal conditions

4. The price agreed upon by the buyer and seller

The correct answer is: The most probable price for which the property would sell under normal conditions

Market value is best defined as the most probable price for which a property would sell under normal conditions. This definition takes into account various factors consistent with the assumptions of a fair transaction, including adequate exposure to the market, reasonable time for the sale, and the motivation of both the buyer and seller. Normal conditions imply that the seller is not under any undue pressure to sell quickly and that the buyer has no restrictions that might distort the price. This price is intended to reflect what buyers are willing to pay and sellers are willing to accept in a competitive marketplace. In contrast, the highest price at which a property can be sold refers more to a potential transaction but may not reflect what the market would yield under normal circumstances. The cost to replace the property relates to replacement cost, not market dynamics, while the price agreed upon by the buyer and seller may not represent true market value if the terms are influenced by personal motivations or external pressures. The definitive focus of market value is on the most probable price in an open market scenario, aligning with typical buyer and seller behavior.