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Originally Posted by x5GuyInLA
I don't think you're being an ass, and hopefully I'm not being one, but I guess we're all agreeing to disagree.
I think you missed an important aspect of what defines market value. "the price represents the normal considerations for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." the frenzy market was created by this exact phrase. you say that short sales and foreclosures are below market value sales, but once they close, isn't that where the market is at? if my neighbor bought his home for $500K, why would I want to pay more than that for a comparable home? i have a client in escrow right now who is paying essentially 25% below what a comparable unit sold for in the building last year, and this is not a distress sale (list price was about 18% below the sold unit). while that maybe below market, that price will dictate what other units will sell for in the area. so if a future seller tries to get a price that is significantly higher, he would be hard pressed to find a buyer that will pay that much more than the last sale.
I agree that where the market is is where the buyer and seller agree. yes it takes 2 to tango, but one always leads and is in control. before it was the seller, now it's the buyer. maybe our markets are different. here in LA, if you price your home over market, you've pretty much killed any chance of selling your home at market value. perfect example is my aunt who is also an agent tried selling their home for almost $4 mil. I told her it's not worth more than $3.5 in this market. she got an offer for $3.4 and didn't take it because she thought it was too low...now 8 months later, she can't even sell it for $3.2. the market was at $3.4 and not the $4 mil she felt her home is worth. hindsight is 20/20 and i know she'd take $3.4 in heartbeat now.
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If the market is completely flooded with foreclosures, then yes the foreclosures can become the market, or market value. There are only a handfull of areas in Atlanta where this is the case. For example, if I am looking at sales in a development/neighborhood and only a few are foreclosures, then I will throw those sales out and stick with typical arm's-length transactions with typically motivated buyer and sellers, but if I pull sales in the same area and see that nearly all of the sales were bank owned, then I will use the foreclosure and call them market value. Essentially, there is a point when foreclosed sales do become market value if the market is saturated with them.
Your particular client who is purchasing at 25% below the value of the last sale is one example. Maybe the other sellers will decide to sit on their property a little longer and get a little more for their units. Maybe they won't. Maybe they will let them go as well, but whatever price they decide to let them go at is market value and what they determined was fair at the moment for their property. Whether the market is declining or increasing, the seller still has to agree to sell at that price. Market value is not just the ideal price someone
desires, it is what price they are
willing to buy and sell at.
A good point that you made is that there are buyers and sellers markets. We are definately in a buyers market right now, where the buyer does have the upper hand. They still don't "set" the prices by themselves. They just have a little more leverage than the sellers at this moment as supply is high.
Sorry, edit.