What Is It and How Do You Calculate It?

When might a home not sell for fair market value?

There may be times when a home is sold above or below its FMV. For example, if a homeowner is facing an expensive family medical emergency and can’t make their mortgage payment or needs cash immediately to pay hospital bills, that is not a normal selling condition. The homeowner might be compelled to sell the house below its FMV.

Essentially, if either party is reacting to outside pressures, such as a medical emergency, loss of a job, or death in the family, while buying or selling a home, the home’s price point might drift away from its FMV.

5 ways to determine your home’s fair market value

Determining your home’s fair market value is one of the most important steps you can take before listing. The right valuation helps you avoid pricing too high, which can cause your home to sit on the market, or too low, which can leave money on the table. Here are some dependable ways to figure out what your property is really worth.

1. Do your own market analysis, but have realistic expectations

Kent Pratt, a top real estate agent in Missoula, Montana, who works with over 72% more single-family homes than the average agent in his market, explains that when comparing your property to other houses in the neighborhood, make sure you’re doing a fair comparison to determine the best listing price.

Remember, the asking price doesn’t mean it will sell for that amount when the transaction is complete.

Even if your neighbor’s house doesn’t seem as nice as yours but sold for a higher price, there could be other factors, such as the market trends at the time it sold, upgraded features, or its larger lot size. These differences will affect the price even if you have the same square footage inside your house.

2. Get more details with a comparative market analysis (CMA)

When your real estate agent conducts a comparative market analysis (CMA), they look at everything that can impact your home’s value. This includes your property with all its amenities, tax history, the recent sales of other nearby properties, the neighborhood, school district, and market activity for your zip code.

The CMA is summarized in an extensive report, complete with photos and comparable properties. Pratt recommends using an experienced agent who won’t use “superior comparables” of upgraded properties that sold for a higher amount is best.

“That’s where you sometimes run into disagreements with owners or sellers of a property: [when] the appraisal or the CMA [isn’t] comparing like properties. You’re comparing a superior property or an inferior property to the seller’s property,” he adds.

Accurate pricing is important, especially​​ in a balanced market, where neither buyers nor sellers tend to have an advantage. According to top agents surveyed by HomeLight, ineffective pricing is one of the leading causes of stalled home sales. A price that’s too low leaves money on the table for sellers, while a price that’s too high can lead to high days on market (DOM) as a home sits unsold.

For example, Pratt said if an agent uses comparable properties with granite countertops, hardwood floors, and stainless steel appliances, and your property doesn’t have those same features, it could affect the property’s true value by bolstering the price.

To set a strategic, realistic price, take advantage of the CMA that many real estate agents offer at no cost as part of their marketing strategy.

3. Order a home appraisal for a second opinion about the value

If you want to do a deeper dive into the value of your property, paying for a pre-listing appraisal could provide the added details you need.