What is the fair market value of a home?
For anyone selling a home, as well as anyone buying a home, it is important to understand what the fair market value of a home is.
Consider the fair market value to be the price that a property will fetch in a free marketplace, with a couple of stipulations:
- Both the buyer and seller are knowledgeable about the property.
- Neither the buyer nor the seller is being forced to buy or sell (neither is under duress).
- The transaction (and its negotiated value) are time-framed, meaning that a decision needs to be made or the transaction is voided past a specific deadline.
It's not an exact science, but if you carefully monitor the market and watch which way it's trending, educated estimates are possible.
A CMA (Comparative Market Analysis), performed by an experienced real estate agent, will help in determining market value. A good, experienced real estate agent will be able to provide a list price that ends up being fairly close to the sales price of a home. In order to do that the agent needs to be familiar with the local housing market. Are prices trending up or down? What's the average days on market before a house sells? How much inventory is in the market? How much higher priced are the expired listings compared to similar homes that sold? How does the condition of the home compare to similar homes for sale in the area?
The hard part for real estate agents (particularly in markets high in default scenarios: short sales, foreclosures, and REO's) is communicating to home sellers what we assess their home to be worth in the current market.
We are basing our estimate on an analysis of the area and what is happening in this market. If defaults are high, home values will be dropping. That's a hard truth. The answer for someone selling their home that is unwilling to accept the fact that home values have dropped might be to not sell and wait for the market to improve.