Understanding a Home’s Fair Market Value
The fair market value (FMV) of a home refers to an estimated price that it would sell at. The FMV is a price that the seller and buyer theoretically agree to in an average market. The FMV uses impartial approaches to determine a home’s value. The buyer or seller’s input is not taken into consideration when an FMV established.
How to Calculate a Property’s Fair Market Value
Generally, an FMV is established by professional appraisers. Appraisers find this value using a comparative market analysis. Mind you, this method can be used by you or any realtor, but an appraiser uses it most effectively.
A comparative market analysis takes other properties into consideration, including ones recently sold. Ideally, an appraiser would factor in the following:
• Homes sold over the last 180 days.
• Homes within a mile of a subject property.
• Homes with the same features a subject property has.
For such properties, a realtor or appraiser will use the latest sales prices in order to establish your home’s value. With that said, because it isn’t possible to locate homes that have the exact same features, appraisers might need to make an adjustment for two. For instance, if the nearest sale that can be used as a comparative is 600 square feet larger than your property, the value of the home would be adjusted with a reduction.
HOW AN FMV OF A HOME IS USED
An FMV is a key aspect in a number of circumstances, including when a home is sold or purchased. The price to be paid should be based on how the market is at the time.
Other FMV uses include:
• Short sale
• Trusts and wills (properties inherited)
• Home financing (refinancing or buying)
• Insurance claims
• Property tax assessments
Keep in mind that an FMV may be subjective. Although appraisers use an area’s comparative sales, a number of adjustments are occasionally warranted. Also, not everyone is always in agreement on the choice of comparable properties.
Ideally, the FMV would have everyone in agreement for every factor involved. It wouldn’t be hard to locate comparative sales, which are carbon copies of subject properties. Since the world we live in isn’t perfect, though, we are dependent on a professional appraiser’s expertise, as well as the feedback of realtors, to determine a home’s FMV.