One of the most confusing things for any homeowner is trying to understand how much their home is actually worth. Fair market value, often abbreviated as FMV, is the value at which an asset (like your house) would sell under normal market conditions. It’s a primary tool used to determine a home’s asking price.
So what exactly determines the fair market value of a home? We spoke to some industry experts who explained how they go about figuring out the fair market value of homes on the market.
We’ve all heard about the importance of location, and this is a big factor in determining the accurate value of a home. Maybe your house is a tiny 2-1, but it’s located in one of the most desirable neighborhoods in town. That matters a lot. On the other hand, even a spacious home with lots of upgrades will take a hit on FMV if it sits along a busy highway or next to a noisy industrial park.
“So many factors go into determining home value, including location, community, schools and even access to services,” says Andrew Roderick, real estate investor and CEO of CreditRepairCompanies.com. “It’s important to take everything in the immediate area into account, and think of it as something that could positively or negatively impact the value of the property. You should also be aware of any changes coming up in the neighborhood, such as new builds and even new businesses.”
A home’s value is affected by its overall condition and features — as seen through the eyes of a buyer.
“A home’s age, its features, and how it functions can dramatically add or subtract from your value,” says Realtor Heather Tindall Robillard of RE/MAX Tri County. “Sellers mistakenly look at their home through rose-colored glasses rather than taking an unbiased assessment of its condition and features.”
Robillard urges homeowners to ask themselves objective questions, like “how modern are my appliances” and “does my house have a quirky layout?” Older roofing systems, HVAC, and even plumbing might also contribute to a lower home value, even if these things still will work perfectly.
If you plan on staying in your home for a while and the budget allows, take some time to update old or broken systems and appliances. While it might mean more of an investment now, it will also increase your home’s overall value and how much you’re able to sell for in the future.
Running Comps (Wait, What are Comps?)
To determine the price of a home they’re trying to sell, real estate agents use the Multiple Listing Service, also called MLS. It allows them to compare current asking prices and recent sale prices of homes in a given area.
The rest of us log on to sites like Trulia and Zillow to see the real estate happenings in our neighborhood. Those websites aren’t updated as frequently and don’t show quite as complete a picture as the MLS, but they contain historical data that can give homeowners a ballpark idea of how much their house is worth.
Here’s how to use those sites accurately if you’re curious where your home ranks:
“Go to one of these sites and look at similar homes (as close to yours as possible), that have sold in the area,” says Brittany Hovsepian, owner of The Expert Home Buyers. “Start with homes that have sold in the last three months, then expand it out to six months or a year to track what these homes are selling for.”
Be sure to pick homes that have a similar number of bedrooms and bathrooms as well as square footage and acreage. That way you’ll get the most accurate picture of what truly comparable homes are selling for.
The difference between what a homeowner thinks their house is worth and what a real estate agent determines is its fair market value comes down to objectivity.
Everything about your own house might seem idyllic in your eyes, it’s hard for you — who brought your baby home to this house and personally painted every room — can see what potential buyers see. Hint: not sweat equity.
“The most common mistake we see is people thinking their home is worth more than it is,” says Hovsepian. “This rings especially true for people that have lived in the home for a long time and have memories that cloud their judgment. It’s difficult, but necessary, to remove emotions from the equation when determining the value of your home.”