Most agents will agree that market value is whatever a buyer is willing to pay for a property, but one real estate veteran says that couldn’t be further from the truth.
“There are over 200 definitions of market value in textbooks across north America,” says Barry Lebow, an agent in Toronto. “The confusion is market price. Market price is what people pay; it has no bearing on market value.”
For instance, a buyer who wants their children to go to a particular school will pay more for a house in that district. However, when that family sells their home, there is a chance they won’t get the return they want – especially if the new buyers don’t value that school district, for example.
“Value-to-use is what people believe [a property is worth],” Lebow explains, pointing to the school district example. “The actions of a single person are not the actions of the marketplace. And that confuses people.”
The idea of value-to-use has most commonly been applied to superheated regions across the country. As inventory declines in Canada’s major markets, property prices have been steeply rising, but market value isn’t necessarily following suit.
“The other problem is that we’re in a frenzy in the Toronto market,” Lebow says. “That’s frenzy, not market value. People have paid hundreds of thousands over what a house should go for because they believe there’s a scarcity.”
But, with price increase not expected to cool any time soon, Lebow says over-paying buyers just need to wait for actual market value to catch up.