Under OCC 12 CFR 34.42(g), which describes the market-value price concept?
Correct Answer
D) The most probable price under the specified competitive and open-market conditions
For the stated OCC definition, market value concerns the most probable price under specified competitive open-market conditions. Investor-specific objectives instead concern investment value; neither an assessment nor depreciated construction cost alone is that market-value definition.
Why This Is the Correct Answer
Option D is correct because the agencies' appraisal regulations define market value as the most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale. The definition also assumes prudent, knowledgeable buyers and sellers and a price not affected by undue stimulus. Option D captures the core of that definition.
Why the Other Options Are Wrong
Option A: A price based on one investor’s individual objectives
Option A is wrong because a price based on one investor's individual objectives describes investment value, not market value. Market value reflects a competitive open market rather than a single party's goals.
Option B: The tax assessment of the property in its jurisdiction
Option B is wrong because the tax assessment of the property is set for property tax purposes in its jurisdiction. An assessment is not the most probable price under competitive open-market conditions.
Option C: Replacement cost of the improvements less depreciation, plus the value of the land
Option C is wrong because replacement cost of the improvements less depreciation, plus land value, describes the cost approach. That is one method of estimating value, not the definition of market value.
Most probable, open market
Market value is the most probable price in a competitive, open market, not one investor's number, a tax figure or a cost total.
How to use: Use this to separate the market value definition from investment value, assessed value and cost.
Exam Tip
Key phrases for market value are 'most probable price' and 'competitive and open market.' Options tied to one buyer's goals, taxes or construction cost describe other concepts.
Common Mistakes to Avoid
- -Equating market value with the assessed value for taxes
- -Confusing investment value with market value
- -Treating the cost approach result as the definition of market value
Concept Deep Dive
Analysis
This question tests the federal regulatory definition of market value. Market value is the most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale. Investor-specific value, tax assessments and depreciated cost are different concepts.
Background Knowledge
Federal financial institution regulators define market value for appraisals used in federally related transactions. The definition centers on the most probable price in a competitive and open market with informed, prudent parties and no undue stimulus. Other value concepts, such as investment value or assessed value, answer different questions.
Real-World Application
A lender orders an appraisal for a loan and specifies market value under the federal definition. The appraiser analyzes comparable sales to estimate the most probable price under open-market conditions. The owner's tax assessment and a particular investor's target price are not substitutes for that analysis.
More USPAP Questions
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