When it comes to your home’s Fair Market Value, you’ve likely heard conflicting ideas about the best way to calculate it.
Information gets muddy, because it isn’t actually an exact calculation. It’s an estimate and it can change, even daily, based on market conditions.
With a quick online search of your address, you might see varying estimates on home buying websites such as Realtor.com, Zillow and Trulia. This is one example of how the value can differ and how multiple estimation tools should be used for accuracy.
Whether you have time to prepare and renovate your home or need to sell your home fast, understanding what Fair Market Value is and how it’s estimated, gives you confidence in approaching the sale of your home.
We outline the basics of Fair Market Value so you know how to estimate it, who can help and what its value can impact.
What is Fair Market Value?
Fair Market Value is an impartial estimate of the market value of a property. It’s an estimate based on what a knowledgeable, willing and unpressured buyer would likely pay to an equally positioned seller in the current market.
House factors considered in determining the Fair Market Value include:
- Square footage inside and outside
- Number of bedrooms and bathrooms
- Similar homes in the area, especially that sold recently
- Condition of the market
How to Estimate Fair Market Value
There are many ways to estimate Fair Market Value. The best way to ensure you have an accurate value is to use as much information as possible.
- Tax assessment
- Online automated valuation estimates, such as home buying websites
- Comparative market analysis, which compares your property to properties with matching or similar features – typically provided by a realtor
- Calculating the mean sale price of recently sold homes nearby
For most homeowners, it’s not ideal to do this work on their own, especially when trying to sell their home, which involves preparing their current home, purchasing a new home and moving. Instead, sellers might want assistance from a professional. In this case, an appraiser, realtor, or instant offer company has more experience with determining a Fair Market Value.
Beyond the Basics
As Money Instructor says, Fair Market Value assumes that the buyer or seller aren’t under pressure to complete the transaction. Various personal pressures can affect the price that’s agreed upon after considering the Fair Market Value, such as either the seller or the buyer needing to relocate quickly, inheriting an estate and other various unexpected reasons for moving. This is where an attorney or realtor can assist in protecting you as the seller.
Beyond selling a home, Fair Market Value can also be important for understanding and negotiating aspects of owning or inheriting a home, including for property taxes, insurance purposes, refinance options, equity and renovations.
Professional Estimates: Traditional Appraisal vs Online Instant Offer
- Traditional Appraisal
In traditional real estate transactions, and as a requirement in transactions involving a lender, a licensed appraiser is hired to view the home and document various features, including square footage, condition, similar homes in the area, location and market conditions. The information collected is used by lenders, insurance companies and other agencies to estimate the home’s Fair Market Value.
Traditionally an appraised value will be used as a major, if not the only, factor in determining the Fair Market Value of a home, even though it’s determined by the opinion of a single appraiser, not necessarily the full considerations needed to estimate Fair Market Value. When selling a home, additional considerations will determine the actual price at which to offer the home.
For example, when selling a home, a realtor will use the Fair Market Value to recommend a price when putting the house on the market, based on these factors, with an additional focus on the local market’s current condition. Depending on the market’s response to the house, the price might then be adjusted.
- Instant Offer Online Data
Instant offer companies, or iBuyers, are tech-based home investors that buy and sell houses digitally, streamlining the process, both for themselves and homeowners. If you sell to an iBuyer, you won’t put your home on the market, stage the home, do showings or negotiate offers from buyers.
When considering a newer method of selling a home through an instant offer company, a homeowner applies for an instant offer by providing basic information about their home online.
The instant offer company compares your information about the home’s condition, features and location to other houses using millions of data points they’ve collected in their selected markets.
They also incorporate local experience in each targeted market, providing more considerations and detail that can take the guesswork out of determining a home’s value. Using this data, they make an offer on your home.
More Information Brings More Accuracy
As Fair Market Value is an estimate and not an exact calculation, the more methods you have to estimate it, the more accurate you can be. It’s recommended that you don’t solely rely on either a tax assessment, appraisal or online estimates for your home, but instead consider each of these along with other information about your home, nearby homes and the local market.
The Art of Estimating Fair Market Value When Selling Your Home
It’s quite normal when selling a home to rely on professionals, such as home appraisers or instant offer companies to determine a reliable Fair Market Value. You now also have the tools to do a little research yourself and have a better understanding of how the professional’s reach their estimates.
Educated with this knowledge, you can simplify the process when you’re ready to sell your home and ensure a fair price for yourself and the buyer.