How Is “Fair Market Value” Determined?
by Ted Ricasa on May 13, 2014
When buying, selling, or even refinancing your own, you will need to know the fair market value. What is the fair market value? Basically, the fair market value is the price your home should fetch on the open market. Arriving at your fair market value consists of taking into account a number of different factors. By knowing the factors professionals use to create a home’s fair market value, you can ensure you receive the most from your investment, whether selling the home or taking out a home equity loan.
Why Do I Need To Know a Fair Market Value?
As we briefly covered above, the fair market value is vital when placing your home on the market. Otherwise, you could easily price your home out of the market or sell you home for less than it is actually worth. When purchasing a home, the fair market value can help you calculate municipal property taxes and homeowner insurance rates. The fair market value also helps determine rates when refinancing a home or taking out a home equity loan. Finally, if you plan on purchasing a home, especially one not currently on the market, the fair market value can help you make a reasonable offer.
How Does One Determine the Fair Market Value?
The methods used to determine fair market value vary, as there is no definitive formula. Many of the factors lay outside of the home itself. In fact, two very similar homes may end up with two very different fair market values. If you home is located in a suburb or a larger metropolitan area can alter the fair market value. The proximity to good schools is also a factor. Other factors, such as the crime rate in the area surrounding your home, can affect the fair market value.
Your neighborhood represents one of the biggest factors when determining your fair market value. You will need to look at the prices comparable homes around you are selling for. To figure out the value of your land, you will need to look at what plots in your area are selling for. Combined, the price of comparable homes and land plots will give a rough estimate of what replacing your home would cost. This is a huge part of determining the fair market value.
After looking at the prices homes and land plots are selling for in your area, you will need to add in any income your home generates. If you own a commercial business or even just rent a room in a residential home, the income will come into play when finalizing your fair market value. If you have any questions about the process of determining fair market value, talk to your real estate agent or find a number of sources online, including sites that will help you calculate the fair market value of your home. Our team at Fast Home Help can also assist you with any questions or concerns.