Fair Market Value

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Mortgage Dictionary -> Fair Market Value

Everyone wants to get a good deal on the item they're buying. In the case of real estate, most people do not want to pay more for a piece of property than it's worth. The way of knowing how much a property is worth is to look at the property's fair market value. Unfortunately, many buyers and sellers do not fully understand that term, and if you're one of them, you'll want to read on.

So What Exactly Is Fair Market Value?

To put it in simple terms, fair market value is the price at which a seller is willing to sell the property. It's also the price at which a buyer is willing to buy the property. It's essentially like equilibrium in economics where supply and demand meet up. In more technical terms, fair market value is the price that both an informed buyer and informed seller agree to. In other words, no one is getting ripped off when a home is sold at fair market value.

But How is Fair Market Value Determined?

It's not as simple as the seller just deciding to sell the house for X amount of dollars. Rather, the fair market value of a home is determined based on many factors. One of the main factors is the condition of the home as well as the specifications of it. Obviously, larger homes in good condition will garner a higher fair market value, while smaller homes in poor condition will have a lower fair market value.

Another factor is the state of the real estate market in and around the area of the home. A house in a poor real estate market will have a lower fair market value. Because most sellers cannot determine this themselves, they usually hire a real estate broker who can give them an approximate fair market value for the home.