How to Calculate Fair Market Value
Fair market value is just that...the value that the market will pay for your home. It is the amount of money that an average buyer will pay for your home based on current market conditions. You need to understand that what you believe your home is worth and what the market believes it is worth are most likely two entirely different numbers. The amount of money you believe that your home is worth, based on the time and money you’ve invested in the home, in addition to how much you love your home, has nothing to do with how much you’ll get for it. To find out the market value of your home, consider the information below.
The best way to find out the fair market value of your home is by looking at comparable sales in your neighborhood. This is the single most accurate way to get an idea of how much your home will go for. This means that you will be looking at all the recent sales in your neighborhood (or nearby neighborhoods) of homes that are similar to yours. This "market comparison approach" is the one used by reputable real estate professionals, including real estate appraisers. A real estate appraiser’s main job is to appraise the value of homes.
If three houses identical to yours have sold in your area for $500k each, chances are your home will sell for the same amount. If the homes are similar, but yours has a newer kitchen, a small addition, or landscaping, you may be able to get more. More likely than not, your review of comps in your neighborhood will reveal homes that are similar but differ in condition, amenities, etc. You will end up with a comp range. You will then be able to place your own home somewhere within that range based on the condition of your own space.
Another approach sometimes used to establish fair market value of a home is to find out its assessed value. The assessed value is based off of the tax assessment of your home, and is often not very reliable. Every office has its own method of assessing property, so there isn’t a uniform standard. The information found is often out of date, and doesn’t always apply to the most current market conditions.
Some people also use the "last sale price info" that can be found in property reports. The problem with this is that you have no idea if the previous buyer paid too much, or too little, so it’s not a reliable measure. You’d have to know the conditions surrounding the last sale. Also, the previous sale probably happened too long ago to be of much use to you now.
Some people rely on the listed price of nearby homes to determine neighborhood market value. Bad idea. Those homes haven’t even sold yet, and the list price is probably an optimistic one. It could be the price of a seller who is testing the market to see if anyone bites. That will end up being a waste of your time. Only deal with homes that have actually sold. That information is real and tangible, and is something that you can use to hang your hat on when determining a price for your own home. Real estate agents may often use list prices to determine a price for your own home. Be forewarned, as you may end up joining the list of homes that haven’t sold in the neighborhood.
