Home > What is Fair Market Value?
What is Fair Market Value?
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What does “Fair Market Value” mean?
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Fair market value. You hear the expression all the time. But what is "fair market value" and how is this number determined?
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The term "fair market value" generally means the price at which a seller will freely sell and a buyer will freely buy. "Fair Market Value is the price for property which would be agreed upon between a willing and informed buyer and a willing and informed seller under usual and ordinary circumstances; it shall be the highest price estimated in terms of money which property will bring if exposed for sale on the open market with reasonable time allowed to find a purchaser who is buying with knowledge of all the uses and purposes to which the property is best adapted and for which it can be legally used."
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The dollar amount represented by fair market value becomes important in many cases.
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- When a home is priced for sale
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- When an offer is made to buy property
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- When a home is part of a divorce settlement
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- When a home is part of an estate
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- When the government wants to take your home through condemnation
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| What makes the concept of a fair market value interesting is that different people may define this expression to mean a wide range of values. This is not surprising because many factors can play into creating a valuation including property location, age, lot size, local market demand, condition, financing, and related factors. |
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| Where can you find information to help measure fair market values? |
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| Your best choices are local real estate brokers who are familiar with your area and appraisers. |
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| Brokers can provide a "competitive market analysis" (CMA) that compares your property with recent sales as well as like homes currently on the market. Different brokers may produce differing valuations, so it's important to ask how figures were obtained. (It's not unreasonable for brokers to have differing opinions because market prices often fall within a range of values.) |
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| Valuations are also available from appraisers. Appraisers are specialists who typically provide independent estimates of value for lenders, estates, insurance companies, and others. It’s important to note that a licensed appraiser can be held liable for his/her opinion of value. In other words if a licensed appraiser tells you your house is worth $125,000 but when you go to sell - it only appraises for $110,000, if market conditions haven’t changed the 1st appraiser could be liable for the difference, if they can be found guilty of “fluffing” or inflating the value. (It isn’t uncommon to find appraisals that are performed by banks for home equity loans that are often “inflated,” in value and mislead the consumer into thinking his property is worth more than what it actually is. Of course, the bank often has a vested interest in giving you a high appraisal, because they want to loan you the maximum amount of money.) |
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| Market values are important because if a property value is set too high it's likely to languish on the market. If the value is set too low then owners won't get full value. The same problems also impact buyers: If the property is over-valued you'll pay too much if you buy, if it's undervalued it will be quickly sold, perhaps before you get to it. |
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| In addition to brokers and appraisers, other sources of general price information include local property tax offices, open houses, and newspaper ads. ( A word of caution; don’t make the mistake of thinking the “tax assessed” value is the same as “market value.” It isn’t. All of us who own property want our tax assessed value to be much lower than the actual “market value,” because our property taxes are based on the more conservative “assessed value.”), These type of resources, however, may not be complete or up-to-date when compared with the information available from local brokers and appraisers. |
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Upon request Au Glaize Real Estate and its agents will perform a written (sorry, we don’t do verbal estimates) Comparative Market Analysis (CMA). The consumer should be aware that our CMA’s are not five minute exercises, generated on a computer screen (you can go to zillow.com for that type of estimate.) Instead, we spend on average four to six hours to provide the seller with a very detailed estimate of value.
Our CMA’s not only include comparable sales from the area that are a good match to your property, but we also point out things that can be done to enhance your selling price. (Request us, to email you a sample). We try to get colored photos of the houses we compare your property to, in order for you to visualize any similiarities or differences. We also include detailed information about each house we used to compare to yours.
To insure that our estimates on value are as accurate as humanly possible, we try to verify the terms of the sale. Clearly a majority of sales in this market area are accompanied by concessions the seller made to get their property sold. The most common examples are when the seller pays the buyers closing costs, or down payment, or repairs, etc. (other CMAs and zillow estimates are based on sales prices taken from court house transfers, which NEVER record the concessions that may have been paid by the seller for the buyer.)
Without deducting these financial incentives or concessions, values that zillow and others give you could result in your property value, being over-inflated. This is one of the main reasons there are so many over priced listings sitting on the market, month after month and even year after year.
Of course, a majority of sellers prefer to hear that their property is worth "top dollar" and many real estate agents find it easier to get the sellers business if they go along with the sellers inflated value. They also know it'll just sit on the market until the seller realizes they were too optimistic and unreasonable. It's unfortunate but in a majority of these situations the Seller ends up paying dearly; in loss of time, lower sales price and often misses out on other homes they wanted to buy.
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Competitively priced (more in line with "fair market value) properties have a much higher tendency to sell on more favorable terms to the seller, than those that sit out there on the market forever and often end up with drastic price reductions just to get buyers motivated to look at them.
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| If you have any questions about your homes' “market value,” don’t hesitate to call us. |
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Please complete the following information for a free comparative market analysis of your home.
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