What Is Fair Market Value (FMV) Of A Home And How Is It Determined?

If you’re trying to buy a house, the home’s value is a critical component of the process.  Home values determine both the price of houses in the neighborhood you’re moving into and how much you’ll be able to get for selling your own home. During your time as a homeowner, you’ll likely encounter various situations where you’ll need to know how much your home is worth.

It’s possible to think about the value of a home in several ways – and one is fair market value (FMV). Let’s discuss what the fair market value of a home is, when it’s used and several ways to calculate it.

What Is The Fair Market Value (FMV) Of A Home?

The fair market value (FMV) of a home is the price of a house as agreed upon by a well-informed buyer and seller. FMV is the price a house would sell for in a “typical” market where the buyer and seller are knowledgeable about the property, acting upon their free will and under no external pressures.

FMV serves several purposes – from the housing market to the tax world – and can be measured using more than one method. There are multiple ways to determine a home’s general value as well, so FMV is often confused with other calculations, such as market value and appraised value.

Fair Market Value Vs. Market Value Vs. Appraised Value

Fair market value, market value and appraised value can be equal, but they’re all unique calculations that take different factors into account. When drawing any conclusions about a property, it’s important to know which calculation you’re considering so you can understand the meaning of the number.

Again, fair market value is the price of a home as determined by a knowledgeable buyer and seller under “normal” conditions. Market value, on the other hand, is the actual amount the home is priced at when put up for sale on the open market. In other words, FMV is an estimation of what a home should sell for, whereas market value is the actual price the house sells for based on the current market factors of supply and demand.

Appraised value is another representation of home value, and it’s often comparable to FMV. However, appraised value is determined by a professional who will conduct a home appraisal that factors in the age, location and condition of your home, along with local market data.

The values discussed here can be extremely close, or even the same, but each is determined in a unique way, and one value may be more useful than another in a particular situation.

How To Determine The Fair Market Value Of A Home

The fair market value of a house is more than just a knowledgeable buyer's and seller’s agreed-upon determination of the house’s worth separate from supply and demand-related market factors.

Up next are two additional strategies for finding fair market value.

Comparative Market Analysis (CMA)

With a comparative market analysis (CMA), real estate agents gather sale prices from recently-sold properties in a certain neighborhood to assign a fair market value to a house. Usually, a CMA is used to determine the selling price of a home, but it’s also useful for prospective home buyers who are trying to make accurate and competitive offers on a property.  

Home Appraisal

A home appraisal will produce an appraised value, which is different from fair market value. In some cases, though, the appraised value is virtually the same as the fair market value. When a fair market value is necessary for insurance or tax purposes (which we’ll dive into shortly), an appraisal is often an acceptable valuation of a property.

When Is The Fair Market Value Of A Home Used?

You now know how to find the fair market value of a house, but when will you need this information? These are a few circumstances or items that require fair market value:

• Property taxes: To calculate your expected property taxes, the fair market value of your home (or appraised value) is multiplied by the tax rate in your area.
• Homeowners insurance: Homeowners insurance companies use the fair market value of your house to decide how much it will cost to replace the house if it’s irreparably damaged. FMV also determines the amount you’ll pay for a policy, and how much you’ll receive if you file any insurance claims.
• Divorce proceedings: Fair market value helps a judge determine a fair way to divide a property between spouses after a divorce.
• Estate matters: The fair market value of a property matters when dividing assets equitably among heirs.
• Refinancing: During a mortgage refinance, a refinance appraisal is often required to determine the fair market value of a home. The final value plays a role in whether a lender will issue you a refinance.

Fair Market Value FAQs

Want to learn more about fair market value? Here are some straightforward answers to commonly asked questions about this topic.

How do I find the historical fair market values of a home?

To find a home’s historical fair market values you can visit your local assessor’s office in person or online. Contact the office ahead of time and see what information you’ll need to access the records, and then request the record of assessment.

How do I determine the fair market value of an inherited property?

Finding the fair market value of an inherited property is much like finding the FMV for any other property. You can work with a real estate agent to get the FMV of the property, contact the local assessor’s office or schedule an appraisal. Keep in mind that there will likely be additional steps or obstacles when dividing up the inherited property among multiple heirs.

How can I find the fair market value of my home right now?

The fastest way to access the fair market value of a house is to check recent home sales of a property — essentially conducting your own competitive market analysis — or contact your real estate agent to get the information. Scheduling an appraisal and requesting public records, while accurate, is likely to take longer.

The Bottom Line

Fair market value can be a useful tool when you’re house hunting, listing your home, estimating property taxes or even considering a refinance. Looking to discover the fair market value of your current or future home? Work with a real estate agent who can help you access this information.

If you’re a prospective home buyer navigating home values in the current market, enlist the help of a real estate professional and start the approval process with Rocket Mortgage^Ⓡ.