When it comes to buying a home, there are so many factors to consider — especially regarding the home’s price. There are a few different ways to assess a property’s value during the homebuying journey, and that includes the fair market value (FMV). Let’s take a look at what FMV means and how it helps determine a home’s final selling price.
Fair market value (FMV) definition
The fair market value of a home is the price it would reasonably sell for in an open market. The seller and potential buyer, ostensibly operating with the same knowledge about the property and market, agree to this price willingly and are under no pressure to complete the transaction.
Fair market value can fluctuate due to market conditions and pressures like supply and demand — which can influence the asking price and lead to things like bidding wars.
How to assess fair market value
Here are some considerations to help you begin assessing the FMV of the home you’re interested in:
- Use a Comparative Market Analysis (CMA). A CMA, one way to assess the value of a home, is typically done by a real estate professional. It is the comparison of one property to other similar properties for sale or that have recently sold to help determine a fair asking price. By “similar,” we mean in location and property size. CMAs are often used to help inform price per square footage as well.
- Have the home inspected. Completing a professional inspection of the home can give you a sense of any repairs that may need to be made on the home, which can affect your offer, the negotiations and the ultimate selling price.
- Get the home appraised. A professional home appraisal is often required for mortgage approval. It considers factors like “curb appeal,” location and amenities. It isn’t an official determinant of fair market value, but it’s a good starting point in assessing how much the home may be worth. You can also try using a home value estimator.
Benefits of preparing before buying a home
Knowing the housing market helps you prepare for the homebuying journey. By referencing a CMA and having the home appraised and inspected, you can gather the appropriate knowledge necessary to help reach a fair selling price.
Fair market value is what a home would reasonably sell for in the current market, and it can be influenced by certain factors like supply and demand. You can assess a home’s fair market value by referencing a CMA and having the property inspected and appraised. Getting to know the housing market and having these details handy can help you be better informed for your homebuying journey and reach a fair selling price for the property.