How to Calculate Fair Market Value
By: ROS Team
Has your friend recently sold their home and now you’re curious how much your home is worth? It’s a good idea to know the fair market value of your home. You never know what lies ahead and when you may have to decide to sell, refinance or borrow against the equity in your house.
If you are looking for a simple answer, well, the fair market value of the house is what a potential buyer is ready to pay for it. However, other factors like the behavior of the real estate market and the experience of your real estate agent play a role.
How to Calculate Fair Market Value
1) Get Help from Online Tools
2) Perform a Comparative Market Analysis
3) Hire a Professional Appraiser
4) Ask Around About Recent Home Sales
5) Contact the Tax Authority
6) Why knowing your Market Value is Important
1. Get Help from Online Tools
The internet is usually the “go-to” when you need any kind of information, and you can almost always find what you’re looking for. Searching for real estate information is no exception. You can learn more about the fair market value of your home by visiting real estate websites. You may even be able to calculate the fair market value using the online tools provided by simply keying in the information requested.
The best thing about online tools is that they are free and are, for the most part, user-friendly. Online tools are the quickest ways to find the fair market value of your home.
However, online tools aren’t perfect; they are only good to get an estimation of the fair market value since these tools don’t take into account any unique information about the property.
2. Perform a Comparative Market Analysis
A comparative market analysis, or CMA, is another option to determine the fair market value of your house. It works on the principle of comparing properties with similar features in the surrounding area. It also factors in questions like how long it’s taking to sell the property and the price at which the property is sold. You will have to work with a realtor to conduct a CMA.
Realtors Generally Observe the following Features:
- Size
- Location
- Number of Bedrooms
- Number of Bathrooms
- Style and View
- Home Type (e.g. single or family home, co-op, condo, etc.)
3. Hire a Professional Appraiser
When you get a home loan to buy a property, it’s not granted solely based on the loan application. The bank asks the buyer to get a third party appraisal of the property to confirm the fair market value of the house.
The seller is not obligated to determine the fair market value of their home, but conducting a third-party appraisal is an effective tool. Appraisals aren’t free but the method is tried and true. To get the best estimate, get an appraisal from two or more different appraisal companies and take the average of their results.
When the assessment is done, get a copy of the report as it will include the following information:
- Location of the Home
- Whether the Home Sits in a Flood Zone
- The Condition of Utility Connections
- Age of the House
- The General Condition of the House
- Home Amenities
- Whether or not the Home has been Remodeled
- The Working Conditions of All Major Appliances
These are all factors considered during the appraisal of the house.
4. Ask Around About Recent Home Sales
When you live in a certain area, you know people around you and what is happening in their lives. Similarly, you know people in your neighborhood who are selling their property. If you’re comfortable, ask them at what price they’re selling their home.
Along with the price, you also need to consider the features of their house and how they compare with your house. Try to find recently sold properties that are similar to yours. Now do simple math and find the average sales prices. The result will be the fair market value of your house.
5. Contact the Tax Authority
This is an interesting way to determine fair market value. You’ll need to ask your local tax authority to provide you with the current property tax assessment for your home. Once you get that, you should be able to figure out the tax rate of your house and divide yearly tax by the tax rate to determine the value of your home.
Still, confused? Well, consider you paid $20,000 in property taxes at an applied tax rate of 4%. Dividing $20,000 by 4% yields $500,000, which would be the fair market value of your home.
Why knowing your Home’s Fair Market Value is Important
One key to selling your home fast is to price it right. Most of the time sellers end up asking for more than the fair market value when they price their homes to sell and their homes remain on the market for longer than they should. So if you plan to sell your property in the near future, find out the fair market value of the home as soon as you can before listing it for sale.
Final Words:
What you get from the buyer is what the fair market value of your home is. However, it remains debatable if you get the fair value of your home since many factors affect the market value on any given day. These factors include the home’s location, surrounding properties that are also for sale, and features that are unique to your home.
If you want to get the most accurate estimation of the fair market value of your home, you should tap into all the methods recommended above. Using them will help give you the most accurate fair market value for your home.
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