Final answer:
Market value is typically understood as the price that an informed buyer is willing to pay and an informed seller is willing to accept, establishing a fair market price for an asset such as real estate.
Step-by-step explanation:
Market value is most generally considered to be the price an informed seller will accept and an informed buyer will pay. This concept implies that both parties have full knowledge of all the relevant facts and neither is under any compulsion to transact. It relates to real estate transactions, where the market value of a house, for example, is a key consideration for both the buyer and the seller.
To further illustrate, if Freda's house is currently worth $250,000, regardless of what she originally paid for it, and she owes nothing to the bank, her equity in the house is the full market value of $250,000. Similarly, if Ben's house has increased in value to $160,000 and he has a remaining mortgage of $60,000, his equity would be $(160,000 - 60,000) $100,000. This equity is based on the current market value, not on the original purchase price or the amount of money initially loaned.