What Is Market Value?
Market value is what a property would sell for today—not what you paid, not what you want, but what the real estate market would bear. Appraisers and investors use comparable sales (comps) to estimate it. For ARV and BRRRR deals, you're estimating market value after renovation. For rental property analysis, cap rate and NOI drive value: Value = NOI ÷ cap rate. A $12,000 NOI property at a 6% cap has a market value of $200,000. The Deal Analysis guide walks through both approaches.
Market value is the price a willing buyer would pay a willing seller for a property in an open market, with both parties acting knowledgeably and without duress.
At a Glance
- What it is: The price a property would sell for in an arm's-length transaction with informed buyers and sellers.
- Why it matters: Market value drives equity, refinance loan amounts, and sale proceeds.
- Two approaches: Sales comparison (comps) for SFR and small multifamily; income approach (NOI ÷ cap rate) for rentals.
- Key risk: Your estimate and the appraiser's can differ—especially at refinance time.
- Where it shows up: Purchase offers, ARV estimates, appraisals, 1031 exchange valuations.
How It Works
Sales comparison (comps). Pull 3–5 recently sold properties similar to yours—same neighborhood, same type, similar size. Sold, not listed. Listings are wish prices. Adjust for differences: extra bedroom, newer roof, bigger lot. Average the adjusted prices. That's your market value estimate. Appraisers do the same thing—they're required to use sold comps and document adjustments. Your ARV for a BRRRR deal is market value after renovation. Same methodology.
Income approach. For rental property, market value often comes from income: Value = NOI ÷ cap rate. A property with $14,400 NOI in a 6% cap rate real estate market is worth $240,000. Change the cap rate to 5.5%, and value jumps to $261,818. Cap rate is the real estate market's required yield. Tighter cap = higher market value per dollar of income.
The appraisal moment. When you refinance or sell, a licensed appraiser opines on market value. They use the same comps and income methods—but they pick the comps, not you. Your ARV might be $200,000; the appraiser might come in at $185,000. That $15,000 gap shrinks your refinance loan by $11,250 at 75% LTV. Capital trapped. This is why conservative ARV estimation matters.
What it's not. Market value isn't tax assessed value (often 20–30% below market value). It isn't replacement cost (what it would cost to rebuild). It isn't your purchase price plus rehab (that's your basis). It's what a buyer would pay today.
Real-World Example
Marcus: ARV estimate for a Memphis BRRRR.
He's underwriting a 3-bed ranch. Purchase: $95,000. Rehab: $38,000. He pulls five sold comps—all 3-bed, 1-bath, renovated, within 0.4 miles, sold in the last 4 months:
- Comp 1: $158,000 (1,180 sqft)
- Comp 2: $167,000 (1,240 sqft, new HVAC)
- Comp 3: $152,000 (1,100 sqft, cosmetic only)
- Comp 4: $163,000 (1,200 sqft)
- Comp 5: $171,000 (1,300 sqft, corner lot)
He tosses Comp 5 (outlier—corner lot his property doesn't have). Adjusts Comp 3 up $5,000 for finish level. Adjusted average: $161,500. That's his ARV—his estimate of market value after renovation. 70% Rule: $161,500 × 0.70 − $38,000 = $75,050 max offer. Listed at $95,000. He walks or negotiates hard.
Six months later: He finishes rehab. Lender orders appraisal. Appraiser comes in at $155,000. Marcus's ARV was $161,500. The $6,500 gap costs him $4,875 in refinance proceeds at 75% LTV. His capital recovery is lower than he modeled. That's market value risk.
Sophia: Income approach on a Cleveland duplex.
$10,800 NOI. Real estate market cap rate for similar duplexes: 6.5%. Value = $10,800 ÷ 0.065 = $166,154. She rounds to $166,000. That's the market value an income-focused buyer would pay. If she sells, that's her expected sale price—assuming the cap rate holds and NOI is accurate.
Pros & Cons
- Comps-based market value grounds your ARV in real transactions.
- Income approach ties value to NOI and cap rate—the numbers you control.
- Knowing market value helps you avoid overpaying and sets realistic refinance expectations.
- Equity = market value minus loan balance—it's the core of your wealth position.
- Comps can be thin in slow or unique real estate markets.
- Appraisers may disagree with your estimate—you don't control the refinance appraisal.
- Cap rate compression in hot markets can inflate market value beyond sustainable levels.
- Market value is a point-in-time estimate—markets move.
Watch Out
- Comp selection bias: Picking the highest comps to justify a deal inflates market value. Use the middle of the range. Toss outliers.
- Appraisal shortfall: Your ARV and the appraiser's market value can differ by 5–15%. Model a 5% haircut on ARV before you buy.
- Income approach trap: NOI must be realistic. Overstated rent or understated operating expenses inflate market value. Verify both.
- Exit risk: Market value at sale depends on the real estate market when you list. A downturn can erase equity you thought you had.
Ask an Investor
The Takeaway
Market value is what a property would sell for—driven by comps for SFR and small multifamily, or by NOI ÷ cap rate for rental property. Your ARV is your estimate of market value after renovation. The appraiser's number at refinance time can differ—model conservatively. The Deal Analysis guide and BRRRR guide walk through the full methodology.