The fair market value of a property is what you could expect to obtain if you sold it privately that day. This value is significant not just for selling considerations, but also for determining the equity and investing strength of your house. If you intend to sell, refinance, or borrow against the equity in your house, you must first ascertain the fair market value. In contrast, if you plan to buy a home in the near future, determining the property’s fair market value upfront might help you avoid overpaying—or help you find an incredible offer.
In this article, we’ll discuss what fair market value is and the several methods of calculating fair market value. Read on!
What Is Fair Market Value?
Fair market value is the price that would be paid for a property in an open market. This value is usually determined by the highest and best use of the property. It is the most probable price that a property would sell for on the open market. It is the price that both a willing buyer and willing seller would agree to in an arm’s length transaction. This is given that neither party is under any compulsion to buy or sell, the property is being sold on an as is basis, and that both parties have reasonable knowledge of the property.
How to Calculate Fair Market Value?
1. Use Online Tools
One way to determine the fair market value of a property is to use online tools. There are several websites that offer tools for estimating the value of a property. These tools can be helpful in estimating the value of a property, but they should not be relied on as the only method for determining the value of a property.
There are several online tools you can use to calculate fair market value. The most popular are probably websites like Zillow, Redfin, and Realtor.com. These websites mainly use automated valuation models (AVM) to estimate the value of a property.
2. Do a Comparative Market Analysis
A comparative market analysis (CMA) is a report that compares similar properties to the one you’re interested in selling or buying. It can tell you the average of what properties similar to the one you’re looking at have been selling for.
CMA is a very popular method used to determine the value of a home. It can be conducted by licensed real estate agents, and appraisers. A CMA will usually include factors that affect the value of a property, such as other property characteristics, location, market trends, and the home’s condition. It will also include information about the sale price of similar properties in the area.
3. Review Recent Property Tax Assessments
Another method you can use to determine the fair value of a property is by reviewing its most recent property tax assessment. An assessment is a detailed description of a property, its intended use, and its value. Assessments are issued by the local tax authorities and can be accessed from their websites.
Property assessment documents can provide a lot of information about the property. They contain detailed information about the property’s size, structure, and recent improvements. These records might not be available for free, so it would be best if you check with your local county assessor’s office to determine the cost.
4. Income Capitalization Approach
An income capitalization approach is used to determine fair market value. It is based on the income a property generates compared to other properties where the land is used in a similar way.
An income capitalization approach is based on the capitalization rate. The capitalization rate is the ratio between the net operating income (NOI) to the value of a property. Net operating income is the income generated by the property for normal business activities. The income capitalization approach is based on the assumption that the property generates income that is similar to other properties that generate income for the same use when considering the land’s potential uses and the real estate market.
There are several ways you can calculate a property’s fair market value. This value is important in determining a property’s value, especially if you plan to sell, refinance, or borrow against it. Knowing the property’s fair market value helps you avoid overpaying or spotting an amazing deal.
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