Understanding the Difference Between Fair Cash Value and Market Value in a Single Family Home
When considering the purchase of a single-family home, understanding the distinction between fair cash value and market value is crucial. Knowing the difference can help you make informed decisions and ensure you are getting a fair deal.
What is Fair Cash Value?
The fair cash value of a home is based on the price that a buyer is willing to pay at the time of the transaction. In other words, it is the amount of money a willing and able buyer is willing to pay for a property, and a willing and able seller is willing to accept, without any external pressures.
What is Market Value?
Market value, on the other hand, is the probable price for which a property should sell on the open market in a reasonable period of time when exposed to competition in unaffected conditions. This is determined by an appraiser or through a comparative market analysis (CMA) provided by a real estate agent. The CMA typically compares similar properties in the neighborhood, considering factors such as size, location, and condition to establish a reasonable value range.
The Role of Appraisals and Compiative Market Analysis (CMA)
Appraisals by professional appraisers and CMAs by knowledgeable real estate agents provide objective and professional assessments of market value. These assessments are crucial for buyers, sellers, and lenders to make informed decisions.
Do Cash Purchases Get Different Sales Prices?
There is a common belief that buyers offering cash will receive discounts on the sale price of a property. However, this belief is not always accurate. While some sellers may offer discounts to close deals quickly, especially for cash purchases, it is not a universal rule.
As a listing agent, my stance is that a cash purchase should not result in a significant discount unless there is a compelling reason such as a strict timeline that necessitates a quick closing. In my experience, sellers are savvy and understand the value of their property. Therefore, if there is no appraisal involved and the seller is motivated by a quick close, they might be more likely to consider a lower price.
Case Study: Seniors and Cash Sales
Private sellers, especially seniors, may be particularly vulnerable to low-ball offers. For example, a seller on the west side of Tenafly, New Jersey, under-sold their home by at least $100,000 due to a cash sale. The seller even offered to take anything left in the house as-is. This dramatic loss in value could have been avoided by listing the property with a good real estate agent, who would have secured a higher, more reasonable offer through a fair CMA.
Developers often exploit the desire of seniors for quick and easy transactions, offering intentionally low prices in exchange for their property. While these deals might appear attractive, they can result in significant financial loss for the seller.
It is important for sellers to be cautious and seek professional guidance to ensure they receive fair market value regardless of the basis of the sale. Real estate professionals can provide valuable insights and strategies to achieve the best possible outcome for the seller.
Understanding the difference between fair cash value and market value is essential for both buyers and sellers in the real estate market. While cash offers may sometimes receive discounts, these situations are not commonplace and should not be expected as a default. Sellers should be aware of the potential for quick but low-ball offers and should seek professional advice to protect their property's value.