What does market value reflect in real estate?

Market value in real estate is defined as the price that a buyer is willing to pay and a seller is willing to accept for a property under normal circumstances, meaning neither party is under undue pressure to transact. This is essentially the amount that is mutually agreed upon in a transaction between willing and informed participants. Such a valuation considers current market conditions, comparable sales, negotiations, and individual buyer and seller circumstances.

The other options do not accurately define market value. For instance, the cost of construction materials is related to replacement or construction cost, rather than the market dynamics of a property. The assessed value by tax authorities is an estimate used for taxation purposes and does not necessarily reflect the true market value. Average prices of similar properties may provide a guideline or reference but do not encompass individual negotiation and conditions that influence what a specific buyer and seller agree upon. Therefore, the price agreed upon by buyer and seller is the most accurate representation of market value in real estate transactions.