The Fair Market Value of a home is the price at which reasonably well-informed buyers and sellers are willing to do business. It is based on a number of factors, including the house’s floor plan, location, and condition, as well as the local real estate market. It’s important for you and your agent to know the FMV because inaccurate pricing and appraisal issues are among the top reasons home sales fall through. Setting too high a price will limit interest and discourage buyers; too low a price can suggest there is something wrong with the house. An accurate listing price will get the most potential buyers to take a look, and the more who do, the more offers you are likely to get.
Methods for Determining FMV
One way, used less often and mostly for new homes, is the cost method. This method appraises the cost of land, building the house, renovations done, etc. and subtracts the depreciation to arrive at the fair market value. It can be a useful method in the absence of sales data from the neighborhood.
But the most common way to determine fair market value is the comparison method, sometimes called a Comparable Market Analysis. This method calculates FMV by comparing your house with similar ones sold recently in your immediate area. Despite what a seller may have invested in a house, a CMA will give you and your agent a realistic context for how to price your home for sale. Knowing the “highs” and “lows” in your neighborhood may allow you both to agree on a “golden spot” in the middle that will really attract buyers.
Pros and Cons of DIY Fair Market Value
There are several online tools that you can use to determine Fair Market Value. But be careful: although a good place to start for a “ballpark” figure, these tools may not be using the best and most updated information.
You can use websites such as RealtyTrac, the local tax assessor’s site, or even a newspaper to find the data for a CMA. Look at recent local sales for: the sale dates, the square footage, the number of bedrooms and baths, the total acreage, and the year the homes were built. But remember that real estate markets can change quickly, and your data can go out of date just as fast.
There are also websites that offer an AVM, or Automated Valuation Model. Analyzing a number of variables in millions of real estate transactions, they predict your estimated FMV. It’s surprising to think that such a vast quantity of information could still be limited, but AVMs have no way of factoring in the unique features of your particular house, such as the great view or extra bathroom you just installed.
Your Agent is Your Best FMV Source
To move beyond a “ballpark” fair market value, your best resource is your real estate agent, because she has experience with and the most complete information about home sales in your neighborhood. Not only is she right there to consider your view and new bathroom, she will know about specifics, like new city ordinances, and abstract factors like walkability. Her CMA is going to lead to the most accurate FMV.
Not only that, but your agent can help you increase the fair market value of your home by advising on repairs, quality low-cost updates, curb appeal, etc. He’s the one who will know whether insulating the attic is competitive in your area, or how much landscaping to do at the time of year you’re selling. And he will spot the mistakes to avoid, whether it’s that pale purple bedroom or just overgrown shrubs blocking your natural light.
A local agent with a great track record is your best source for getting an accurate fair market value, and for getting the interest and offers it leads to.