The fair market value of home and real property is complex calculation that you need to know about if you are stepping into the market as a buyer or as a seller. Even if this is not your first time around the block, you may be able to improve your ROI and quality of life by learning just a few of the ways in which fair market value is determined. Here is a crash course.
What is fair market value?
Fair market value is the price that a seller will accept and a buyer will pay for a home. This number is contingent upon a number of factors including the negotiation skill of each party involved. You can change the fair market value of your home by learning new information at any time.
Fair market value assumes that neither the buyer nor the seller is under any kind of duress. However, the official definition does not include the emotional pressures that each party places on himself. A buyer may prefer a certain property over his other choices. A seller may be looking to avoid another mortgage payment on an underwater property. Although no real estate professional will tell you this, your fair market value must include all of the psychological pressures that you and your negotiating party face if you want to maximize that value for yourself.
Let’s take a look at some of the factors of the real property that affect the fair market value.
What is curbside appeal?
Rating the curbside appeal of a home only means that the value of a home goes up as its attractiveness increases. Curbside appeal is simply how the property looks from the curb, the vantage point from which casual observers view the lot. Neighborhoods with high curbside appeal are assumed to have a high quality of life all around, which tends to attract quality buyers to the area.
Is there a popular element to the look?
In high value neighborhoods, the type of architecture that is used in a home may help to increase its value if that particular design is in style. This is usually not a concern for properties below the multi-million dollar range, although it can affect properties in those neighborhoods as well. Architecture can also go out of style, lowering the value of the home. There are certain styles, such as Victorian and Chicago bungalow, that tend to maintain their value because of their acceptance as industry-standard architecture styles. In effect negating the architecture as a factor in the fair market value of those homes.
What is the condition of the home?
A turn key property tends to have a higher fair market value that a fixer upper. Most homeowners place a premium on the convenience of an immediately livable home, especially one with a clear home appraisal and relatively new structural components. The age and the condition of the major appliances is also a huge factor in determining fair market value.
How big is the property?
The size of the lot usually affects the fair market value of the home in a proportional manner. In the more suburban parts of the United States, the proportion of the size of the property to the surrounding land also plays a role. For instance, if you have a 1,000 square foot house on a five acre property, the house may lose value because most other comparable lots have larger structures on them.
Larger numbers of bedrooms and bathrooms tend to have a positive effect on the fair market value of a home. These are the rooms that are most often used by residents in the home, and it is also a statistic that is quoted quite often by real estate agents. Between two properties with the same square footage, the household with the larger number of bedrooms and bathrooms will likely draw the higher price.
What is the culture of the surrounding neighborhood?
You must also consider the quality of the amenities surrounding your property and neighborhood. If your property is managed by a homeowner’s association, then the common amenities such as the pool and the gym can affect the price of the private lots within the jurisdiction of that association. If your property is freestanding, then your fair market value may be affected by the school system that serves the neighborhood.
Are you in a buyer’s market or in a seller’s market?
If there is more demand for housing than supply, then you are in a rising market that will raise the price of all properties. However, if there are more sellers than buyers, then the fair market value of all properties may fall. Keep in mind that you may face a seller’s market in a certain contingent of real estate while the larger market suffers. For instance, during the 2008 housing crisis, the high-value market for real estate was not affected nearly as much as the real estate that was in the $100,000-$250,000 range.
You will have everyone from your lender to your agent trying to tell you about the value of your home. If you want to have a fruitful discussion or negotiation with any of these people, you need to have an idea of your home’s value, as well. Closely consider all of the criteria above and calculate your value for yourself.
2 Point Highlight
Neighborhoods with high curbside appeal are assumed to have a high quality of life all around, which tends to attract quality buyers to the area.
There are certain styles such as Victorian and Chicago bungalow that tend to maintain their value because of their acceptance as industry-standard architecture styles, in effect negating the architecture as a factor in the fair market value of those homes.
