A price is a fact. Market Value is a judgement. In Portugal the two are often treated as the same thing, in reports, in loan files and in public debate. They are not, and the International Valuation Standards (IVS) are clear about the difference.
What the IVS say Market Value is
IVS 102 Bases of Value defines Market Value in Appendix A10.01 as the estimated amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller, in an arm’s-length transaction, after proper marketing, where the parties had each acted knowledgeably, prudently and without compulsion. The RICS Red Book Global Standards do not write their own definition. VPS 2 reproduces the IVS text.
The definition is applied through a conceptual framework. Each element carries weight. “Should exchange” means an estimate, not a pre-determined amount or an actual sale price. The buyer and seller are hypothetical. The seller is not the actual owner, with the actual owner’s circumstances. The buyer is a willing buyer, not a particular one. I set out the full definition, element by element, in Market value under IVS.
Why a price is not the same thing
An asking price is what one seller hopes to obtain. It is not an exchange, and it was not tested by a buyer.
A transaction price is a real exchange, but between real parties, on real terms. Those terms may include atypical financing, a sale and leaseback, a related-party relationship, or value available only to one purchaser. The IVS framework excludes prices inflated or deflated by such special terms. It also sets aside special value and synergistic value that only one buyer could capture.
A price also belongs to its own date. Market Value is time-specific. It reflects the market at the valuation date, judged without the benefit of hindsight.
None of this makes prices irrelevant. Transactions are the primary evidence. The point is narrower. A price is evidence of value. It is not, by itself, the value.
Basis of value comes first
Market Value is one of six bases of value defined in IVS 102. The others are market rent, equitable value, investment value, synergistic value and liquidation value. The IVS Glossary defines a basis of value as the fundamental premise on which the reported value is based.
The choice matters in practice. IVS 102 notes that the basis of value may influence or dictate the valuer’s selection of methods, inputs and assumptions, and so the final figure. A figure for a quick sale is not Market Value. A forced sale describes the circumstances of an exchange; it is not a distinct basis of value. A figure for one specific owner is investment value, not Market Value. The six bases are set out in Basis of value under IVS.
What a defensible valuation in Portugal must show
The standard applies in Portugal as it does elsewhere. In practice, a valuation reported at Market Value should let a reader see four things.
- The basis, stated and sourced. The Red Book requires that the basis of value be reproduced or clearly identified in both the terms of engagement and the report (VPS 2, para 3.4).
- The assumptions, stated separately. Assumptions and special assumptions change what is being valued. They should not be buried in the analysis.
- The evidence, and how it was adjusted. Which transactions, which dates, which terms. Where a comparable carried special terms, how the valuer dealt with them.
- The inputs a market participant would use. Under the income approach, inputs and assumptions must be those participants would adopt, not those of the client.
An automated model output, on its own, is not an IVS-compliant valuation. It may be an input. It does not replace the judgement.
What still needs evidence
The definition is settled. The harder work is evidential. In a market with limited published transaction data, the valuer must show how a hypothetical, properly marketed, arm’s-length exchange was inferred from the evidence actually available. That is where a valuation is tested, and where it should be judged.
References
- IVS 102 Bases of Value, Appendix A10.01–A10.07, A90, A120.01; IVS Glossary 10.03 and 10.18 (IVS effective 31 January 2025)
- RICS Valuation – Global Standards (Red Book), VPS 2 paras 3.4 and 4.1–4.4
- IVS 105 (valuation models)
- Guides: Market value under IVS · Basis of value under IVS · How to cite the market value guide
Related reading
José Covas FRICS — about the author