What is the fair market value of a home? Fair market value (or “FMV”) is an estimate of the price that a home would sell for on the open market. When fair market value is estimated, it is assumed that the buyer and the seller are both reasonably well-informed and neither is in a hurry to buy or sell the house. FMV is an approximate price, not an exact amount.
How is fair market value calculated
Professionals consider factors like the size of the home, its age and condition, the size of the property, and the neighborhood when they make their estimates. There is no one formula to calculate a home’s FMV. Here are four ways to find it:
- Go to a site like Zillow or Trulia. One quick way to find the fair market value of a home is to check online real estate sites. Both homeowners and homebuyers can use these sites to research the estimated value of a home and compare it to other houses in the neighborhood.
- Contact a local realtor to run a comparable market analysis (CMA). Real estate agents often run this report for homeowners thinking about listing their houses for sale. A CMA will show properties in the area with similar features to the home. You’ll see a range of what other homes are worth and get a better idea of where the asking price of your home should be.
- Get an appraisal. It typically costs between $300 and $400 for a home appraisal. An appraiser will go through the home to determine the interior and exterior condition and come up with what they think it is worth. Appraisals are a part of most home sales because lenders usually require them before they approve a mortgage to buy a house.
- Check the taxes. Homeowners can get a copy of the tax assessment, which can give insight into the value of the home. Many communities list this information online, typically on the local county tax assessor website. Both homeowners and homebuyers can use these sources. Online tax records may also include information about a house’s last sale price, number of square feet, and more.
Note a house’s fair market value can go up or down depending on the economy and local housing market. It’s important to evaluate a property’s value as close to the point when you want to buy, sell or refinance a home to ensure the FMV is as accurate as possible.
Fair market value and buying a home
When you’re shopping for a home, it’s helpful to understand the fair market value of the home you are interested in buying. Comparing the fair market value and sale price of similar homes in the community can be helpful too. That’s because understanding a home’s FMV can help you determine whether the list price is high, low, or about right. It can also help you make a successful offer when you’re ready to buy and know whether you’re getting a fair price on your dream home.
Fair market value and refinancing
The fair market value of your home can also help you determine how much home equity you have. Your home equity is calculated as the current fair market value of your home minus your current mortgage balance. Here is an example:
|Current fair market value of your home||$350,000|
|Current mortgage balance||$200,000|
|Estimated home equity||$150,000|
A substantial amount of home equity might allow you to refinance your mortgage for more than you currently owe and get the difference in cash with a cash out refinance. Typically, you can only borrow a portion of your home’s equity.
Why else is fair market value important?
Fair market value is also important in other financial transactions. Sellers and listing agents use FMV to help price a home for the current market. Outside of the sales process, a home’s fair market value affects the property taxes a homeowner may pay. It’s also used in the insurance process if you file a claim after a flood, fire, or other disaster or accident.
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Ana speaks 3 languages (Portuguese, English, Spanish), Wife, Stepmom, Journalist, Event Director for the National Association of Hispanic Real Estate Professionals (NAHREP) Central MA Chapter.