- 2 min read
Market value vs. sales price: what's the difference?
Market value
Before a property can be sold, you need to find out what its financial value is. This is where the market value comes into play: various methods can be used to determine the objective value of a property. The market value thus forms the basis for the selling price of a property and is based on the price that can be achieved in the ordinary course of business at the time of the determination, taking into account all relevant factors such as location, condition and building materials used. This value is determined without taking into account personal or unusual circumstances and takes into account legal circumstances and actual characteristics. In simple terms, the market value represents the most likely selling price.
A distinction is made between three valuation methods: Comparative value method, income value method, asset value method. The appropriate method is selected depending on the type of property and the buyer's preference.
In this method, the market value is calculated using reference values. The reference values are purchase prices for properties with similar parameters, such as location, size, condition and furnishings. The result of the procedure is a relatively concrete price that can be achieved on the market. The basic prerequisite for accurate figures is the availability of a large number of reference values. If too few values are available, the result may be very inaccurate. One disadvantage of this method is that no meaningful data can be determined for properties with unusual features, special fittings or special value.
In order to calculate the market value, this method compares the ongoing costs of maintaining the property with the income generated and achievable. The annual net income, which is used for the calculation, results from the rental income minus the management costs. The final building income value is calculated by multiplying the net income by the remaining useful life of the property. This method is primarily used for rented residential and commercial properties.
This method focuses on the production costs of a property. The asset value of the building and the land value are considered separately. The method also takes into account the depreciation of the property due to time/age and the current market situation. Factors such as damage or the need to renovate a property can reduce the value. This method is primarily used for detached houses and condominiums in rural areas as well as listed or industrial properties. It is the most complicated of the valuation methods.
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Sales price
The sales price or value is the price that is actually paid when selling/buying. It corresponds to the amount that buyers are prepared to pay on the open market.
Market value vs. sales price
While the market value is only a calculated value, the sales price is a value that is actually paid. In practice, it is quite common for market value and sales price not to match. The sales price can be higher or lower than the market value, whereby the difference between these two values can vary. If the gap is small, a fair price has been paid for the property. If the sales price far exceeds the market value, a price was probably paid that the property is objectively not worth. If there is a high demand for real estate, it is possible that properties are marketed at a higher price than the market value.
Good to know
The market value is not only necessary for the sale of a property, but can also be relevant for real estate financing. Banks use the market value as a basis for determining the maximum loan amount. If the purchase price is far above the market value, the loan amount, which is usually 10 to 20 % below the mortgage lending value, is significantly lower, which in turn means that the difference must be paid with equity.
Conclusion
The market value is a calculated value and indicates how much a property or plot of land is objectively worth. It serves as the basis for determining the sales price. The sales price is the price for which a property is ultimately sold. The two values may coincide, but they do not necessarily do so.
In order to generate the correct market value and ultimately a good sales price, it makes sense to consult experts. Our advisors will be happy to help you and assess your property free of charge.
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