What is Fair Market Value (FMV) In Real Estate?

The concept of fair market value is the estimated and average determined value (price) of a real estate by calculating market criteria. This value is neither as high as the seller can determine nor as low as the buyer can reduce. The fair market value is the value determined by taking into account the conditions and realities of the sector and the market on that day. Fair market value is not a long-term valuation (pricing). Changes in features of the real estate and the developments around it change, and a revaluation can be made according to the market of that day. When determining the fair market value, all features of real estate, internal and external factors should be carefully researched. It should be noted that all factors can change the valuation. These evaluations are required and used in official processes. Therefore, the assessment should be calculated completely and accurately. Otherwise, grossly incorrect valuations may result in criminal sanctions.

What is the Purpose of Fair Market Value?

The purpose of fair market value is to extract an official and average value for real estate, that is, assets. These valuation reports are the actual value of real estate reported to government agencies and institutions such as insurance companies. Together with this way, the value reduction of real estate or unjustifiably high pricing is prevented. Payments such as taxes are again determined taking into account these valuation reports. Banks, individual institutions, and official institutions accept such valuations as the assets of the owner of real estate. Namely, real estate can be considered a material asset of the owner.

What are the Ways to Find the Fair Market Value of a Home?

The methods of fair market valuation are listed and described below.

  • Buyer and seller: Fair market value is generally calculated by an offer that is between the buyer and the seller. In exceptional cases, this value is determined by taking into account the market dynamics.
  • Licensed asset appraisers: Some licensed people are experts in their field for valuations.
  • Real estate agencies and construction companies: Experts and institutions in the sector are competent people in these valuations.

How to Calculate the Fair Market Value of a Home?

Valuations and pricing made by real estate agencies, construction companies, and other sellers on the market for similar-sized houses can be taken into account when calculating the fair market value of a house. In other words, the data should be evaluated, the data should be verified, the properties to be compared should be selected, and the sale value of the properties to be compared should be examined.  In general, a fifteen percent deviation from the value is normal. This valuation can be carried out in consultation with licensed real estate appraisers.

Should Fair Market Value be Calculated Before Buying a Home?

The main thing here is that the valuation is determined by the offers of the buyer and seller. Thus, the most advantageous price is determined by the deviation value. So, it is more correct that the valuation is made before buying the house.

Where Else does Fair Market Value Apply?

Fair market valuations are used in home buying and selling, government agencies, tax determination, bank loan calculations, real estate agencies, and insurance companies.

What are the Challenges of Assessing Fair Market Value?

The biggest challenge in fair market valuation is that the sector and prices are constantly changing. Internal and external factors constantly and seriously affect fair market valuations. Therefore, the valuation and pricing reports made are not valid for a long time. In addition, it is also very difficult to make a valuation in markets whose price range is very wide.

Leave a Comment