Your home's fair market value, or FMV, is the amount a buyer is willing to buy your home for at an amount you're willing to sell.
A home’s fair market value is the amount a buyer is willing to buy your home for, at an amount you’re willing to sell
Although assessments and appraisals can inform the FMV, they’re not the same thing as the market value
One of the hardest parts about selling your home is landing on a sale price that you’re ultimately happy with. After all, you’ve been in the home since forever and poured your heart and soul (and dollars) into it. To you, it’s probably worth more than what most people are willing to pay for it.
So how do you determine a home’s worth for the purposes of selling it? The answer to this is finding out the home’s fair market value, or FMV, which is the amount people are willing to pay for your home. To accurately arrive at the FMV, the following conditions need to be met:
Beyond just establishing the home’s sale price, fair market value plays a prominent role in a number of other areas, which we’ll touch on shortly.
In terms of what constitutes FMV, appraised value, and assessed value, there’s a lot of misinformation out there. All three valuations serve their own specific purpose and shouldn’t be conflated or mistaken for the other.
Your home’s fair market value is the amount that a knowledgeable and willing buyer would be willing to pay for it. Fair market value also assumes the home has been on the market long enough to receive multiple offers and that you haven’t been pressured into making the transaction.
It’s important to note that your home’s fair market value isn’t based on the following:
Keep in mind that the appraised and assessed home value can help inform the home’s fair market value, but it isn’t the FMV. The FMV is dependent upon what the open market and buyer says it’s worth.
Expect buyer’s to consider the following when determining your home’s worth:
As we’ve gone over, the appraised value can help inform your initial sale price, but it doesn’t constitute the home’s FMV. An appraised value is the home’s value as determined by an individual, licensed appraiser.
The appraisal value informs a number of mortgage processes. For example, your lender will require you to get an appraisal as part of the underwriting process when you’re applying for a mortgage. The appraisal helps lenders determine how much to loan you (along with your credit score and income).
Appraisals are also required by lenders to determine your equity position for processes like canceling private mortgage insurance (PMI), second mortgages, or mortgage refinancing.
You may be able to sell the home for exactly what it was appraised for, but more often than not that won’t be the case. You’ll sell your home for whatever the market deems it’s worth — not the appraised value.
The assessed value is a broad valuation of your home (and similar homes in your area) in order to determine how much you pay in property taxes.
Counties employ property tax assessors to find out each home’s value for tax purposes. Every county has its own tax assessment method, but typically homes of similar type and quality in the same area will be assessed the same property taxes. A tax assessor doesn’t enter your home and evaluate its construction or curb appeal like appraisers do.
Homes’ assessed values are public record and can typically be found online through your county’s property tax assessment database. However, like home appraisals, don’t mistake your home’s assessed value for its fair market value. Keep in mind that assessors assign broad valuations, so your home's assessed value could be off by hundreds of thousands of dollars.
In order to find your home’s fair market value, you’ll want to do a detailed sales comparison of what similar properties in your area currently sell for. Ideally, you’ll want to find sales information of at least three properties, according to the New York Department of Taxation and Finance. The department also suggests that you make sure these properties were sold under “normal conditions”.
The department suggests looking at the following characteristics when determining if the sold properties are comparable:
If you’re struggling to find adequate comparisons, you can also look into getting an appraisal done. Appraisals are something else you can point to when convincing a buyer that your offer is fair.
Recession-proof your money. Get the free ebook.
Get the all-new ebook from Easy Money by Policygenius: 50 money moves to make in a recession.
Pat Howard is a homeowners insurance editor at Policygenius in New York City. He has written extensively about home insurance cost, coverage, and companies since 2018, and his insights have been featured on Investopedia, Lifehacker, MSN, Zola, HerMoney, and Property Casualty 360.
Pat has a B.A. in journalism from Michigan State University.
Was this article helpful?