Which conditions does the market value concept presuppose?
Correct Answer
C) Competition, alternative choices and rational buyers
The market value concept presupposes competition for similar properties, alternative choices for market participants and rational decisions by prospective buyers.
Why This Is the Correct Answer
Option C is correct because the market value concept presupposes competition for the acquisition of similar properties, alternative choices for market participants and rational decisions by prospective purchasers.
Why the Other Options Are Wrong
Option A: A single buyer and a single seller with no alternative choices
Option A, a single buyer and a single seller with no alternative choices, is wrong because market value assumes competition and alternative choices. A one-buyer, one-seller situation with no options is the opposite.
Option B: Fixed prices that are set by government regulation
Option B, fixed prices set by government regulation, is wrong because market value reflects prices set through competition among market participants, not prices imposed by regulation.
Option D: Government-provided financing for each transaction
Option D, government-provided financing for each transaction, is wrong because the market value concept does not depend on government financing. It rests on competition, alternative choices and rational buyers.
Competition, Choice, Common sense
Market value needs Competition for similar properties, Choices for participants, and buyers using Common sense, meaning rational decisions.
How to use: Use this when a question asks what market value presupposes.
Exam Tip
Answers describing restricted, regulated or one-sided markets conflict with the market value concept.
Common Mistakes to Avoid
- -Treating a non-competitive sale as market value evidence
- -Assuming special financing is part of market value
- -Confusing regulated prices with market prices
Concept Deep Dive
Analysis
This question tests the market conditions assumed by the concept of market value. Market value presumes an open, competitive market in which participants can choose among alternatives and act rationally. Choices describing a closed, controlled or subsidized market do not fit.
Background Knowledge
Market value is the most probable price in a competitive and open market under conditions requisite to a fair sale. Its underlying assumptions include competition, alternatives for buyers and sellers and informed, rational decisions.
Real-World Application
An appraiser is asked to value a home sold between relatives with no marketing. She notes the sale lacked competition and alternative choices, so it may not reflect market value and needs careful verification before use as a comparable.
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