Which statement most accurately describes market value?

Which statement most accurately describes market value?

• A. The investor's required return heavily influences market value.
• B. Market value is tied to replacement cost.
• C. Market value is the price a property would fetch in an open market, independent of any particular investor's cash flows or risk preferences.
• D. Market value is determined by tax assessments.

Answer: (C)

Market value is the price a property would fetch in an open, competitive market under typical terms, determined by the conditions of willing buyers and sellers rather than any one investor’s specific cash-flow needs or risk preferences. This means it reflects what a reasonable buyer would pay and what a reasonable seller would accept in the current market, with standard financing and terms, rather than the particular investor’s required return or project-specific risks. Replacement cost deals with how much it would cost to rebuild the property, not what it would sell for. Tax assessments are based on statutory methods and often diverge from true market value. Because market value focuses on the market-wide consensus in an arms-length context, independent of a single investor’s cash flows or risk tolerance, the statement describing market value this way is the best fit.

Market value is the price a property would fetch in an open, competitive market under typical terms, determined by the conditions of willing buyers and sellers rather than any one investor’s specific cash-flow needs or risk preferences. This means it reflects what a reasonable buyer would pay and what a reasonable seller would accept in the current market, with standard financing and terms, rather than the particular investor’s required return or project-specific risks. Replacement cost deals with how much it would cost to rebuild the property, not what it would sell for. Tax assessments are based on statutory methods and often diverge from true market value. Because market value focuses on the market-wide consensus in an arms-length context, independent of a single investor’s cash flows or risk tolerance, the statement describing market value this way is the best fit.