Market Price vs. Market Value
What is market price and how does it differ from market value? These two terms are used a lot in real estate, but not everyone fully understands their meanings. Market price is what a willing, ready, and qualified buyer will pay for a property and what the seller accepts for it. The transaction that takes place determines the market price, which will then influence the market value of future sales in the area. Market value, on the other hand, is an opinion of what a property would sell for in a competitive market based on its features and benefits, current market, and what other comparable properties have sold for in similar condition.
Evaluating Property
The valuation of agricultural land takes into account its characteristics including but not limited to the size and scale, productivity, infrastructure, economic factors, physical structures, topography, geographic location, water resources, soil type, and the highest, best use of the property.
Recent comparable sales of property similar in size and purpose are taken into account when appraising land, however, fluctuations in the real estate market can make it difficult to use historical data for future valuations. Comparable ag properties can be nearsighted when determining the annual return a buyer can expect. A detailed financial analysis is required to be conducted from a buyer's standpoint as paying too much for a property takes money directly from profits.
Understanding features that enhance or detract the market value of a property is critical in the eyes of investors, however, value is not always tangible. Some buyers might pay more for a property based on personal elements. For example, Purchaser A, who will be occupying the land, may value a property more than Purchaser B because of its location being close to town or near other farming operations.
Because there is always a limit to what a buyer will pay and what the property will be appraised for, value is essentially in the eye of the beholder. Some buyers may see value in the property but might not be willing to pay more if there is no demand. The current market will always have a role in the significance of value.
Market Influencing Factors
Land values follow the law of supply and demand. For example, a shortage of available land in a region (low supply) with many buyers interested in purchasing land (high demand) are factors that contribute to higher value. Value can create demand, which can influence price.
Land prices are also influenced by a series of economic factors such as the underlying commodity, net income generated by the farming of that commodity, rental rate market, and other external factors such as interest rates, ag policy, government regulation, outside investor influence and the economy in general.
Pricing and Marketing
It's important to form a price strategy to reflect the macro and micro factors such as comparable sales, location and physical characteristics that influence value. If a property is in need of improvement, the owner can reduce the price to attract those buyers who see the value in the property. Price levels the playing field. Buyers may dislike a particular feature of a property but will overlook that negative aspect if the price is right.
Price combined with effective marketing is the key to getting property sold in any market. Quality marketing with the right strategy and message will drive traffic and spark interest, however, in the end the price must be within a purchaser’s budget and provide value.
In Conclusion
If you or your real estate agent do not fully understand the market value of your property, you run the risk of underselling it resulting in less money in your pocket. In contrast, overpricing can result in decreased buyer interest, extended marketing durations and not closing a sale which can stigmatize the property.
You might be wondering how to gauge property values with so many variables involved. Terra West Group can assist in providing critical insight, thorough analysis and accurate property and business valuations. Additionally, our unique sales and marketing strategies can increase value, exposure and demand while potentially driving a higher market price for your property. We take pride in upholding expectations and strive to provide data-driven information for our clients.