How to determine the Fair Market Value of a property
 

How to determine the Fair Market Value of a property?

05-Jan-2022
 

If you are in the market to buy or sell a home, one of the first questions that come to mind is, what is the fair market value of a home?

In order to answer the question, you first need to understand what the meaning of fair market price is.

The fair market price is the valuation of a property based on the prevailing condition in the market. It depends on various factors such as the current trends in the market, the appraisal value of the property, and the assessment of the price of the current property in the market.

One of the key determinants of the fair value price of a home is the size of the home. The price of the home is calculated according to the square feet of the home, its interiors, and surrounding assets.

The fair market value of a home has a huge role to play when it comes to the buying and selling of a home. It determines the listing price of the home - when a homeowner puts it up in the market. It also determines the home insurance fees that the owner will pay when he buys the home, as well as the ease at which the home buyer will be able to secure a mortgage from the bank.

The purpose of Fair Market Value

The fair market value price of a home determines many factors when it comes to the valuation of a home and the processes that involve buying or selling it. In this section, we look at some of the purposes of the fair value price of a home.

Fair market value price determines the price of a home

This is one of the first factors of a home in the market, that the Fair market value price determines. In this case, one of the difficult things that homeowner must do when selling his home is determining the price of his property based on the price of other homes in the same market. However, he must do this without undervaluing his own home and the assets it contains. It is important to remember that the actual value of a home depends very much on the supply and demand of homes in that area. For this reason, the Fair market value price of a home may vary from the actual value of the home, as the open market determines the value of a property.

Securing a loan

For most home buyers, the loan is the most important step taken in the process of buying a home. Fair market value price plays a huge role in determining the loan mortgage that a bank is willing to give a home buyer. By knowing the Fair market value price of a home, the bank is able to determine the future value of a home. In this way, the bank is able to give a loan that does not overshoot the actual value of the property. The bank gives a loan after it factors in the listing price of the property as well as the appraisal price of the property in the future.

Insurance claims

The quotes and rates of an insurance policy are determined according to the Fair market value price of the home. Loan providers evaluate the price of properties according to the market they belong to every year. This way the loan provider is able to determine the appreciation or depreciation of the property every year. Homeowners with high fair market value prices homes are expected to pay more premium for their home insurance.

How is the fair market value price of a home determined

The Fair market value price of a home is determined by these factors

1. Home appraisal value

Every year, the price of a home in the market may fluctuate according to the open market and supply or demand of property. The home appraisal value is a key factor in determining the Fair market value price of a home. The appraisal of a home is determined by a licensed home appraiser. He is able to determine the appraisal of a home-based on the open market and the assets of a home. An appraisal is done taking into consideration factors such as comparative properties, location and land surveys.

2. The state of the market

By using an approach known as the “Sales Comparison Approach” a professional appraiser is able to determine the Fair market value price of a property. The approach uses a comparative market study of the property and determines its Fair market value price. The process is done by comparing the price at which other properties of its class were sold in the same geographic market. Next, factors such as the market condition, home assets, and location are taken into consideration and the final Fair market value price of the property is determined.

3. Square footage

When determining the Fair market value price, the size and square footage of the property take precedence. The Fair market value price of a home is determined by the value of square footage of properties in that area. This variable is then multiplied by the number of Square feet in your property, to determine the Fair market value price.

When you buy a 2BHK apartment or a 3BHK flat, one of the first and foremost things to keep in mind is to invest with a reputed builder. When you are buying your flat from a well-known developer, you can rest assured that you are paying the fair market value, and not a penny more.

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