Finding An Accurate Fair Market Value of Homes

Before undertaking agreement negotiations with the seller, potential home buyers want to know the residential asset's actual market value. This value is also called the fair market value. One crucial element to recall is determining the fair market value of a home.

Evaluating the fair market price of a property can be challenging. This is because different cost terminologies are a part of the negotiation process. One of these terminologies is the selling price, which the seller sets. Another important term is the home budget or the buyer’s offer price. This is the price a buyer sets after evaluating their financial capacity to spend on a new home.

Therefore, it is crucial to comprehend the fair market price concept and use it to bargain with the seller. Let’s start by comprehending the meaning of fair market value.

Understanding the Idea of The Fair Market Value of A Home

A home's fair market price is the value at which the property seller and its buyers have a unanimous agreement. It is essential that both parties settle on this value with full authority, without any form of compulsion.

Both parties should accommodate their preferences and requirements on the fair market price without taking forceful decisions. This value is also the figure appraisers use to establish the maximum loan amount or the property's worth.

Let's say the selling price of a house is $400,000. However, you can pay $360,000 for the house. You initiate property negotiations with the seller and reach a unanimous price agreement of $380,000. This is the fair market price of the house.

How Do I Figure Out The Fair Market Value?

With the fair market value concept at our fingertips, let’s learn how to find this value for your dream home!  

Conduct A Comparable Market Analysis (CMA)

Performing a Comparable Market Analysis (CMA) involves searching for recently sold properties similar to the one that interests you. The next step is to prepare them based on different factors. Such properties are also known as Comps. 

Your comparative analysis can consider several factors, including the property’s condition, size, location, features, and age. You can also collaborate with real estate agents to perform a CMA or use online tools developed for this purpose. Remember that you can only get accurate results from the CMA by using reliable and authentic sources.

Hire The Services of An Appraiser To Find The Fair Market Value

Appraisers are at finding the true value of listed properties. Appraisers employ the same factors used in performing a CMA (property location, condition, size, etc.) to find the fair market value of a home. 

These professionals visit listed properties and prepare a comprehensive report that delineates the fair market value of those properties. The determination of this value depends on various factors mentioned previously. It is worth remembering that the cost of hiring an appraiser varies and depends on the property’s size and location.

If you are considering using an appraiser's services, realizing that the appraisal and fair market price are different is vital. Appraisers use their methodologies to arrive at a price, and that price is known as the appraisal value. 

In many situations, it is common for the appraised values to be significantly lower than the fair market values. As a prospective buyer, you have options. You can talk to the seller and negotiate a new offer based on the appraiser's decreased price. Alternatively, you could get an opinion from another appraiser.

Assess The Latest Market Conditions

You should conduct detailed research on the real estate market to assess the current shifts and trends. Several factors can have an impact on these conditions. Some of these factors include demand-supply dynamics and rate of interest. High-interest rates can lead to a lower fair market value of properties due to increased borrowing costs. 

Leveraging Fair Market Value as a Negotiating Tool

Now that you know how to calculate a property's fair market price, let's utilize it as a valuable negotiation tool.

Use Fair Market Value As A Benchmark

When purchasing a home, buyers often consider the fair market price of the house. This is a benchmark to decide the maximum amount they are comfortable paying. For instance, if the selling cost of a house is high compared to its fair market price, you can use this to persuade the seller to consider lowering the price.

Imagine if someone selling a house asks for $500,000 even though the house is worth $475,000. The seller can be persuaded to drop the demand price using this fair market price as a benchmark.

Use Fair Market Value to Request Repairs or Upgrades

Home buyers can request repairs or upgrades based on the difference between the asking price and the fair market price. If the selling price exceeds the property’s fair market price, you can use this price as a negotiating tool to request the seller for home upgrades or repairs.

There can be several types of repairs and home upgrades needed in a house listed for sale. Therefore, setting up a home inspection with the seller is crucial to identify these home improvements. During an inspection, you may find a need to upgrade the bathrooms or the kitchen. There may be a need to repair the sewage system or the roof.

Use Fair Market Value to Walk Away

Another effective use of the fair market price as a bargaining tool is to leave the negotiation table if the selling price is much higher than the fair market price. Remember that paying more than the fair market price of a house can be costly for you. It can lead to severe financial implications for you in the long run.

That’s A Wrap!

The bargaining process relies heavily on an accurate assessment of the home's fair market worth. Understanding the concept of fair market price and finding this price can help you finalize a favorable deal for you.

The fair market price of a house is an essential benchmark you can use to set the maximum price you are willing to spend on your new home. Now that you have valuable information about the fair market price of properties, it’s time you use it for good effect. Let’s find the fair market value of the home of your dreams!