After years in the real estate appraisal profession, my value opinions have disappointed a client or two. Such occurrences are inevitable if an appraiser is committed to his/her objectivity and independence. Most often when I receive feedback, it is from the party who feels the concluded value is too low. In response, I make a diligent effort to clearly explain my role as an appraiser. Appraisers are engaged to develop an opinion of market value. The most common definition of market value is:

The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

(1)  Buyer and seller are typically motivated;

(2)  Both parties are well informed or well advised, and acting in what they consider their own best interests;

(3)  A reasonable time is allowed for exposure in the open market;

(4)  Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and

(5)  The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Source: 55 Fed. Reg. 33888, August 20, 1990, effective September 19, 1990

I bring attention to the qualifier most probable found in the opening sentence. I have not been hired to answer the question, “What price could this asset possibly sell for?” I’ve been hired to answer the question, “What is the most probable price at which this asset will sell?” There is a big difference.

Let us consider an example. Suppose through my research I found ten to twenty sales comparable to the subject property that sold between $50 and $55 per square foot. Let’s also say I found three to five outliers, sales that sold for $35 per square foot and $70 per square foot. The borrower/owner could argue that the subject property is worth $70 per square foot. Is that possible? Yes, it is possible that the property could sell for $70 per square foot. There is evidence to support such a statement. But is that the most probable price? No. The most probable price, as established by many of the sales, is between $50 and $55 per square foot.