I never understood that part. Barring actual damage that would necessarily affect its worth it's still the same house.
Or in other words: why should I care what others think my house is worth when I'm not selling, as I currently live there?
In my corner of the world banks are required to assume a 2,5-5 percentage point buffer when calculating mortgage eligibility - the upper bracket is for variable interest rate mortgages. An unlikely scenario, but keeps the risk of what you mentioned low.
What a house is worth is what someone else will pay you for it. There is no intrinsic worth to it.
The marketplace valuation is just where individual suppliers' and demanders' valuations cross.
The individual valuations are the foundational reality, or the market wouldn't work.
Every time you buy, sell, or decline to sell or buy something, you are operating based on your own valuation. So there is nothing theoretical about it.
People find out it is true when they try to sell something.
> If you wouldn't sell your house for $1M, then it is worth $1M to you
If you're willing to pay $1M for it, then it's worth that to you.
(Sorry, deleted that phrase after getting distracted while making my comment. In my mind the edit was instant!)
> What a house is worth is what someone else will pay you for it. There is no intrinsic worth to it.
> People find out it is true when they try to sell something.
Of course there is intrinsic value. A buyer has to pay you what you want for your house.
You are setting the market price.
If someone wants it, thats what they will need to give you.
We often use the word “worth” to mean “what would be the best offer I might get. But you won’t sell it if it is “worth” more than that to you. Which “worth” is usually obvious from context.
Valuations happen on both sides of every trade, and most often both participants end up with surplus value. The seller getting more than their minimum price, the buyer paying less than their maximum price.
Even market makers commonly post prices with surplus relative to their neutral trade valuation, and typically move their price if their are no takers. They want a trade at X, but will try for as much surplus as they can before settling for X if they have to.
A buyer offers what he wants to pay for it. You negotiate until reaching an agreement. That is the market price.
I.e. The Law of Supply and Demand.
If you think the seller sets the market price, try selling your car for $10 million.
There are plenty of things which are valuable or bring value, but are never sold or bought.
Case in point: how much is the Sun worth according to you?
But do you doubt I value it because I am not buying or selling it?
I suppose near infinite, in that I would certainly sacrifice everything I have to protect it - given it represents the survival of all of us - which for me at least would be the apex of value.
It is worth noting that value can often be measured in currency, but not always. It is ultimately an ordering of everything, by kind and quantity.
In the end, even money is just another “thing” which we value on a gradient and relative to context (what we need to survive, we value a lot. To live Without stress, a lot, but less. More than that, even less, even if we are ambitious.)
Market value comes directly from each of our personal, “intrinsic” as another commenter called it, valuations. There is no market value where there are no personal valuations. But there can be personal valuations where there is no market.
Each of us still prioritizes what we have against what we want, and the costs to us of that, even if we were hermits. Each of spends our time, the ultimate resource, based on our relative values of things.
That is the source of all “value” or “worth”. Individual or (and before) collective.
It's value is only what people will pay for it.
For example, a relative of mine died some years ago. She had a house full of expensive furniture. You couldn't give that furniture away, even though it was in perfect condition. It had no value.
The average estate value, excluding land, houses, and cars, is about $900. I have friends who ran an estate liquidation service. You'd net something like 5 cents on the dollar.
This is one reason why I buy stuff at the thrift store. I bought a perfectly good chainsaw there for $10.
This is most of where its monetary value comes from (obviously not universally true, many properties have simply become investments), and its monetary value would probably only completely evaporate if the house were so degraded that it could not function as a shelter.
The monetary value of most houses is rooted in their ability fulfill a basic human need, as opposed to the monetary value of some other things, like gold or bitcoin, which are valuable primarily because of what they are worth to other people. Even if you disagree with using terms like 'worth' and 'value', you must agree that a house has utility that is not affected by its market price.
The market price is determined by how much people want it, of which utility is a large component.
If that is how you define it then by definition that is true. It is not the only possible definition though.
In my world I prefer to sleep in a place where the rain doesn’t fall on me. Having a place with a roof over me is value to me. If this meaning of the word “value” does not work for you then simply we are talking different languages.
Perhaps try thinking about “how much would i need to pay to provide the same neccesity if I wouldn’t own this place”. Maybe that puts it into economic terms what we are talking here.
At least where I live, there would be a gulf between the estates of people who bought into the property market and those that rented their entire lives. Latter will have some furniture no one wants and scraps. The owners will have a $2m property and then investment property that get split up between their kids.