How to Determine Fair Market Value of Your Home
Sellers and buyers use fair market values to negotiate the sales prices of homes. Sellers use fair market values to set realistic sales prices on their homes and to apply for equity loans if needed. Likewise, buyers use fair market values to ensure they don’t overpay on homes they wish to purchase.
What is Fair Market Value?
The fair market value is the total price a home would likely sell for on the open real estate market. The current market conditions and personal circumstances of the buyers and sellers can play a significant role in determining the fair market value of a home. Supply and demand weigh heavily here as well.
Don’t confuse fair market value with appraisal value or tax value because those are three different things. The fair market value doesn’t necessarily tell you the value of the home as an asset. Instead, it means how much money the seller may likely get for the house during negotiations with a potential buyer.
The fair market value assumes that the seller and buyer have a reasonable amount of knowledge about the home, including its present condition and the number of repairs needed. There can be no pressure to buy or sell the house for a special price. The negotiations must be based on free will.
Thinking about selling? Find your home or condo's value in today's market, for free.
What Is Fair Market Value used for in general?
Buyers and sellers use fair market values as the basis for their negotiations on a potential home sale. But these values are used for more than sales purposes. Sellers can use fair market values to calculate the amount of equity available in their homes. Meanwhile, buyers use fair market values to determine whether a particular home would be a suitable investment for them.
Fair market values are also used by government agencies and financial institutions too. For instance, if you need to refinance your home loan, the bank will use the fair market value to negotiate the terms of the refinancing agreement. And when you file a homeowner’s insurance claim, the carrier may use the home’s fair market value to calculate a compensation estimate for the claim.
How do you find the market value of a property without an online calculator?
If you want to find the market value without an online FMV calculator, you have to look at three key areas:
Comparative Market Analysis
A comparative market analysis is a comparison of the estimated values of similar homes in your area. It is the primary factor for figuring out the overall worth of your home based on the current market conditions of similar homes in your neighborhood.
Home Appraisal Value
The county appraiser usually performs appraisals on homes at least once per year. But these appraisers don’t even look inside the houses. Instead, they do a “drive-by appraisal” of the homes, which doesn’t tell them anything about the inside.
If you hire an independent home appraiser, they will perform a comprehensive appraisal of the inside and outside of the home. The independent appraisal value is more reliable than the public appraisal value. It is not the same as a fair market value, but it is an important influencing factor.
Property Tax Assessments
Your local taxing authority conducts its own property assessments on properties in your county and city. The property tax assessments are how property taxes are calculated each year. These assessments can influence the fair market values of homes.
Planning on Selling Your Home? Read Our Full Sellers Guide
How to Calculate Fair Market Value
There is no set formula for accurately calculating a home’s fair market value, but there is a formula for calculating a close estimate of the fair market value. It is as follows:
Comparable Homes Sales Prices / Number of Comparable Homes = Fair Market Value
Find a minimum of five recently sold homes in your neighborhood. These homes should have similar physical specifications as your home, such as similar square footage, number of bedrooms, number of bathrooms, etc.
Divide the total of the home sales prices by the total number of comparable homes. Next, subtract the estimated costs of the repairs needed for your home.
Fair Market Value FAQ
Who determines the fair market value of a property?
The buyer and seller determine the fair market value of a property. There is no precise formula for calculating the fair market value because it depends on the personal and financial circumstances of the buyer and seller. These circumstances will vary for each property owner.
Is fair market value the same as an appraisal?
No, the fair market value is not the same thing as an appraisal. A certified appraiser calculates the appraisal value based on the current real estate market trends and the home’s current condition, specifications, and amenities. The buyer and seller have nothing to do with the appraisal value, unlike the fair market value.
How can I estimate my home’s fair market value?
Research all the similar properties that sold in your neighborhood within the last 90 days. Add all the sales prices together and then divide the total price by the number of sold properties. Now deduct the estimated cost for repairing and renovating your home. Consider the local market conditions and the age of your home too. It should give you a reasonable estimate of the fair market value.