There are terms we often hear used in real estate that may mean something a little different than what you would expect. One such term is fair market value. That’s why we are going to take a look at what fair market value means and how to determine it to better prepare both buyers and sellers.
What is fair market value?
Basically, fair market value is the price agreeable buyers would be willing to pay for a home from ready sellers in an open market. Simply put, both willing parties have enough knowledge to move forward with a sale without having to consider outside factors like supply and demand.
Realtors typically use the fair market value to help establish an acceptable price range for sellers interested in listing their property or for buyers interested in making a strategic offer. However, figuring out just what the fair market value of a property is isn’t as easy as adding 2 + 2, for example.
More about determining fair market value
In fact, there is no standard math formula used to calculate fair market value. So, as we continue to break down what fair market value means, it could help to talk more about what fair market value isn’t.
First of all, the fair market value isn’t just what a buyer or seller thinks the property is worth. It also isn’t always the same as the appraisal price or the tax value.
In general, fair market value is based on a combination of several factors. To determine fair market value, a real estate agent looks at the property’s appraisal value, current market trends and other comparable homes, for instance.
Agents will usually take the value of three or more similar homes that have recently sold in the area to get an average. Your Realtor can also use those comps to help calculate an estimated price per square foot to help determine the fair market value of your home.
Summary
Now that we’ve shared the basics of what fair market value means, it’s a good idea for homeowners to know the fair market value of their home at any given time. Did you know that your home’s fair market value is used to determine how much to charge for your homeowner’s insurance policy, for instance? It’s true, and it can affect other financial matters, like taxes, too. Keep reading our blogs to learn more about common real estate terms and the current market trends in our community!
