When determining market value, it is based on what principle?

Market value is primarily determined by the principle of free market conditions, which refers to the value of a property based on what buyers are willing to pay and sellers are willing to accept in an open and competitive market. This concept takes into account various factors like location, demand, supply, economic conditions, and similar sales nearby. Free market conditions ensure that the value reflects the current market trends and the inherent worth of the property in its given context.

Actual cash value is more focused on the replacement cost minus depreciation and does not directly reflect current market dynamics. Replacement cost looks at what it would cost to rebuild or replace a property, which may not accurately represent what that property would sell for in a free market. Functional equivalence involves comparing properties based on their utility or function rather than their market desirability. While these principles are important in property valuation, they do not capture the essence of market value as accurately as free market conditions do.