What is the fair market value of a home?

Find out how a home's fair market value is calculated

Fair market value (or FMV) is an estimate of the price that a home would sell for on the open market. When fair market value is estimated, it is assumed that the buyer and the seller are both reasonably well-informed and neither is in a hurry to buy or sell the house. FMV is an approximate price, not an exact amount.

Fair market value is different from the price for which a homeowner might be willing to sell a house or the price at which a buyer might be willing to purchase a house.

How is the fair market value of a home calculated?

Professionals consider factors like the size of the home, its age and condition, the size of the property, and the neighborhood where it is located when they make their estimates. There is no single formula to calculate a home's FMV. Here are four ways to find it:

• Go to a site like Zillow or Trulia. One quick way to find the fair market value of a home is to check online real estate sites. Both homeowners and homebuyers can use these sites to research the estimated value of a home and compare it to other houses in the neighborhood.
• Contact a local real estate agent to run a comparable market analysis (CMA). Real estate agents often run this report for homeowners who are thinking about listing their house for sale. A CMA will show properties in the area with similar features to the home. You'll see a range of what other homes are worth and get a better idea of what the asking price of your home should be.
• Get an appraisal. It typically costs between $300 and $400 for a home appraisal. An appraiser will go through the home to determine the interior and exterior condition to come up with what they think it is worth. Appraisals are a contingency for most home sales because lenders usually require them before they approve a mortgage for a customer to buy a house.
• Check the taxes. Homeowners can get a copy of the tax assessment, which can give insight into the value of the home. Many communities list this information online, typically on the local county tax assessor's website. Both homeowners and homebuyers can use these sources. Online tax records may also include property information such as the last sale price, square feet, and more.

Note that a house's fair market value can go up or down, depending on the economy and local housing market. It's important to evaluate a property's value as close to the point when you want to buy, sell, or refinance a home, to ensure the FMV is as accurate as possible.

What factors affect the fair market value of a home?

Appraisers look at the permanent features of a home when they estimate its current value. These features include:

• Square footage. The size of the home and the number of bedrooms and bathrooms influence the FMV. Appraisers will also consider garages, basements, and more.
• Lot size and location. The size of the lot on which the house is built and where it is located both affect its value. Appraisers may also consider the quality of the landscaping.
• Age and condition. The condition of the roof, foundation, walls, windows, doors, and appliances, as well as heating and cooling, electrical, and plumbing systems, influence its value.
• Improvements and amenities. Updated kitchens and bathrooms, a media room, a home office, a pool, and other amenities affect its value.
• Sale price of similar homes. Appraisers like to look at the selling price of similar homes in the same neighborhood that have sold in the recent past. These are often called real estate comparables.

Fair market value and buying a home

When you're shopping for a home, it's helpful to understand the fair market value of the home you are interested in buying. Comparing the fair market value and sale price of similar homes in the community can be helpful, too. That's because understanding a home's FMV can help you determine whether the list price is high, low, or about right. It can also help you make a successful offer when you're ready to buy. Plus, you'll know whether you're getting a fair price on the home.

Fair market value and refinancing

The fair market value of your home can also help you determine how much home equity you have. Your home equity is calculated as the current fair market value of your home, minus your current mortgage balance. Here is an example:

A substantial amount of home equity might allow you to refinance your mortgage for more than you currently owe, and get the difference in cash, with a cash out refinance. Typically, you can only borrow a portion of your home's equity.

Why else is fair market value important?

Fair market value is also important in other financial transactions. Sellers and listing agents use FMV to help price a home for the current market. Outside of the sales process, a home's fair market value affects the property taxes a homeowner may pay. It's also used in the insurance process if you file a claim after a flood, fire, or other disaster or accident.

Last reviewed and updated September 2023 by Freedom Mortgage.