Fair Market Value Estimator
The fair market value of your home is
Fair Market Value (FMV) is a concept often used in economics, real estate, finance, and property taxation. It is the price at which an asset would be sold to a buyer.
FMV is often interchangeably used with the word ‘value’. Value denotes the significance of general commodities. On the other hand, FMV is more commonly used for real estate. It changes based on market trends and demand and supply.
Let’s look at the Fair Market Value definition in real estate, how to calculate it, and how it differs from a property’s appraised value.
👉 What does Fair Market Value Do?
- Solves Insurance Claims: When your insured property faces damage or loss, FMV helps insurers determine your compensation.
- Assesses Taxes: FMV helps calculate taxes for estates, gifts, and capital gains, ensuring accurate tax assessments.
- Ensures Price Fairness: FMV sets a fair price for a property, thereby guaranting a fair deal for both the buyer and seller.
What Is Fair Market Value?
The biggest asset you own is your house. The value of this asset represents a major chunk of your net worth. Pricing your home right is crucial to accurately reflect the current real estate market.
The current real estate market determines your Fair Market Value (FMV), which is a fair valuation to price your home.
There are different ways to calculate the fair market value of your home. These are professional appraisals, market evaluations, and calculations through Price by Square Footage.
In real estate, calculating FMV considers the following factors:
- The total area of your property.
- The year it was built.
- Your total built-up Square Footage.
- The amenities you have like a pool or garden.
- Your electrical appliances in the home
What Is FMV vs. Appraised Value?
Fair Market Value and appraised value are similar terms used to calculate the different estimates of a property. The primary difference between them is the person calculating them. They are either an assessor or an appraiser.
Fair Market Value:
- The FMV represents the price at which a willing buyer and seller would agree to a sale in an open market.
- The Fair Market Value of a property is usually used for tax purposes. Mainly it is used to determine the value of assets for an estate (as a gift or an inheritance), tax calculations, or capital gains tax.
Appraised Value:
- Appraised value refers to the estimated value of a property determined by a certified professional appraiser.
- When a property is financed through a mortgage, lenders want to ensure that the house value is equivalent to the loan amount. Hence, lenders require buyers to conduct a home appraisal.
What Is the Purpose of FMV?
The main purpose of Fair Market Value is to provide an objective way to determine the value of assets. Fair Market Value can be used to:
- Set Listing Prices: Real estate agents and sellers use FMV as a reference to set listing prices for properties on the market.
- Calculate Taxes: People use FMV for estate, gift, and capital gains taxes. When people transfer assets, through gifts, inheritances, or sales, the asset FMV helps you figure out how much transfer tax to pay.
- Plan an Estate: Determining the FMV of assets is crucial for estate planning and distribution. It helps ensure that heirs or beneficiaries receive an accurate and equitable share of the estate’s assets.
- Claim Insurance: When an insured asset gets damaged or destroyed, the insurance company uses the asset’s FMV to determine the compensation amount.
- Solve Legal Disputes: Legal cases involving property division, divorce settlements, bankruptcy, etc., use FMV to determine the value of disputed assets.
- Finance a Mortgage: Lenders and investors use FMV to assess the collateral value for loans or to evaluate the value of an investment opportunity.
FMV provides a common standard for valuing assets that might otherwise be subject to individual biases or subjective interpretations.
How to Find the Fair Market Value of a Home?
Many variables determine the fair market value. However, there are very few FMV calculators that help you get an exact price. Here are 5 ways you can get an estimate of your home FMV:
1. Professional Appraisals
The IRS publication 561, says “Each piece of real estate is unique and its valuation is complicated; a detailed appraisal by a professional appraiser is necessary.”
The lender appoints a home appraiser to give their professional opinion of the property’s market value. The appraiser evaluates the property and:
- Compares Similar Home Prices in the Area: They focus on recently sold homes in your area that share similar features, locations, and sizes.
- Assesses Income-Driven Valuation: For income-generating properties, they establish the value by considering the income they generate.
- Utilizes the Replacement Cost New Value Method: By measuring the expense of rebuilding the home with a similar one using current construction costs.
2. Studying the Markets
Pay attention to current trends in the real estate market. Are prices near your home rising or falling? This answer can impact the FMV of your home.
If your neighborhood’s median home prices are relatively stable, then, you can look at the average adjusted amount for the past 3-6 months.
3. Check Real Estate Websites
Real estate websites like Zillow, Trulia, Realtor.com, and Redfin can help get an estimate of your home’s FMV. This can give you an idea of its current market value.
There aren’t many calculators that give you the FMV of your home. You can get an estimate with a third-party calculator, however, it may not be accurate.
4. Check Local Tax Records
Look at recent property tax assessments to see the home value assigned by local authorities. While not always the same as the Fair Market Price, it can provide a reference point.
Here’s how and where you can typically access property tax records:
- County Assessor’s Office
- County Government Website
- Tax Collector’s Office in Local County
- Online Property Tax Portals
- Public Records Search
- Local Libraries or City Halls
5. Calculate the Price by Square Footage (sq/ft)
The most straightforward way to calculate your FMV is by square footage. You can do it yourself with the following formulae:
Home Price = sq/ft of Your Home x Current Price Per sq/ft in Your Area
Example: Let’s say, the current home price per sq ft in your area is $500 and the total built-up square footage of your home is 2,680 sq/ft. Then your estimated fair market value is $1,340,000.
Find Homes for Sale Under Your Specific Budget
Check the Current Housing Market!
Check out your state’s housing market statistics to better predict your home’s FMV.
Final Word
Real estate agents and mortgage lenders calculate the price of your home using the Fair Market Value. FMV defines diverse factors in real estate transactions from the listing price and mortgage amount to gifts and inheritance tax.
It is the number that helps you put a fair price tag on your property. You can calculate FMV using the price/sq ft estimator, or consulting with professionals like appraisers can also help you get a clearer picture.
From understanding its role in taxes to learning its importance in insurance claims, FMV guides us through the financial landscapes of buying and selling a house.
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Frequently Asked Questions
How to find historical Fair Market Value of home?
There are three main ways you can find the historical fair market value of a home:
1. Search public records.
2. Try the local Tax Assessor.
3. Use Real Estate Agents and Real Estate Websites.
How to calculate Fair Market Value?
There are different ways to determine the FMV but you can calculate it using the Square Footage Market Value formula.
Home Price= sq/ft of Your Home x Current Price Per sq/ft in Your Area.
How to determine current market value of home?
Many variables are used in determining fair market value and are different from assessed value. Each valuation comes from two major factors- professional appraisals and historical sales data.
