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What is Fair Market Value?

November 6, 2019 by Megan Gullotta Leave a Comment

If you’ve ever asked yourself this question you’re doing something right. A lot of times when people buy or sell homes, they want to get the most bang for their buck; Whether that’s buying a home at the “best deal, or selling a home at the highest value. I tell all my clients that there are always 3 prices to a home:

  • List Price
  • Fair Market Value
  • Sales Price

This blog is going to be focusing on the middle price, Fair Market Value (FMV). You’ll learn exactly what FMV is and how it is calculated. Although, I will touch a little on the other two.

List Price

Have you ever driven past a house with a for sale sign and once you found out what they were asking thought “they’re out of their mind if they think they’re going to get that price”. Yeah, me too. Or what about a property where you found out the list price was a fantastic deal? In either scenario, keep in mind that you’re seeing the “for sale price”, and not the price it will actually sell at.

Fair Market Value (FMV)

Now the meat of today’s topic, FMV! Fair Market Value is the price a ready, willing, and able buyer (or many buyers) would pay for a home. This is the best place to start when trying to identify what a home is worth when you are offering on a house, or selling a house. From there, you can strategically list your home or strategically offer on a property to ensure success. Now how is FMV calculated? Good question. There are 4 key guidelines to get the true value of a home.

  • Distance
  • Time
  • Size
  • Condition

Each one of these features play a key role in determining value. Knowing how to adjust and calculate can be the tricky part if your agent doesn’t know your market well.

Why is this so important? If you’re getting a loan on a home and putting 20% or less down, the home will need to appraise. Having an agent like me to run a Comparative Market Analysis (CMA) using these guidelines to uncover the true Fair Market Value, will allow you to essentially know what the home will appraise for (within 2% +/-) before actually paying for an appraisal report. Can you see how knowing the value before opening escrow and spending some cash might be an advantage?

And on the selling side; I’m sure you’ve heard of the traditional way of listing homes where you list above the Fair Market Value because you “don’t want to leave any money on the table”. What if you ended up leaving more money on the table by over-pricing? Depending on how… optimistic you are in your pricing, that will sometimes drive potential buyers away & could even discourage some from even making offers. This results in longer “days on market” and eventually will lead to a price reduction or worse… multiple price reductions! If you price slightly under FMV, and market the home strategically, you have the opportunity of having multiple offers and driving the price up and getting the price you wanted in the first place or more! These strategies may change depending on your market.

Sales Price

Last but most certainly not least, the end result is the Sales Price! This is what really matters to most buyers and sellers, right? If your agent knows what they’re doing, they can leverage the 2 other “prices” to negotiate their way to this end result. Whether that is using them to their advantage in getting you as a buyer a better deal; Or using them to negotiate you the highest sales price as a Seller.

Online Instant Valuations

We all have them. We all have used them at one point or another. They are a starting point to give you an IDEA. But take that idea with a grain of salt. For example, you’ve all heard of Zillow’s Zestimate, yes? If you’ve never read the fine print, I’ll summarize it for you. Their algorithm can be off by 23% + or -… TWENTY THREE PERCENT MORE OR LESS. That is 46% that Zillow could potentially be off by… So let that marinate.

On another note! I’m going to be having a giveaway the first week of December so make sure you’re following me on Instagram & have subscribed to my Weekly E-Mails!

More Posts

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Two Reasons Why Today’s Housing Market Isn’t a Bubble

Why an Agent Is Essential When Pricing Your House [INFOGRAPHIC]

Homeownership Is a Great Hedge Against the Impact of Rising Inflation

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Megan Gullotta
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