A home's fair market value represents an estimate or the amount you expect to get when you put your home up for sale.
It's an important aspect of real estate that not only focuses on selling properties, but also caters to assessing what your home's equity is, and its investment potential.
But, say somewhere down the line after owning your home, you decided to do one of three things: sell your home, refinance it or borrow against it (and its equity).
To begin with, there’s always a reason why we’re told time and time again to save up; save up at least three or six month’s worth of living expenses, so that you’ll be able to support yourself and your family during a financial emergency.
However, what if you don’t have enough or nothing at all saved up?
Obviously, the next thing you’ll find yourself doing is aligning the cross-hairs of a personal loan. But if you have a house, it would be a different storyline. Because then you will have to get by calculating the fair market value of your home before progressing your plan(s) (sell, refinance or borrow).
In hindsight, say you also plan to buy a house in the near future pertaining to the success of your current plan, then determining the fair market value of your current property can help you circumvent an overpayment, or even guide you towards a great deal - unexpectedly.
Let’s consider five ways you can easily determine the fair market value of your home:
1. Online home valuation tools
As a rule of thumb, real estate buy-and-sell transactions call for an up-to-date valuation, simply because of the fact that both a land and a house are separately unique and, most often than not, their individual values correspond significantly with the current economic landscape.
However, although onsite physical assessment of a property by a professional valuer remains a tried-and-tested alternative in getting that much needed fair market value of your property, evolving technology has given rise to an array of online valuation tools evident on a number of websites.
These tools allow you to do your own valuation which you will end up with a rough estimate of what you can expect if you were to sell your house. Provided you give honest information, if you want accurate results.
On that note, the details that you input should not be absent of the recent upgrades or remodeling you did to the house since you bought it.Because such information can help improve the expected value of your by a significant margin.
2. Entertain a comparative market analysis (CMA)
When you entertain or allow a comparative market analysis on your property, you put yourself in the same position as the valuer in access to information surrounding a statistical breakdown of what your home's truly worth, compared to similar properties in the same geographical proximity, also with matching features.
In essence, a CMA matches your property with related properties in the same area as yours, in order to ascertain an accurate valuation.
3. Consult a home valuer to conduct a valuation
In most cases, it's a highly recommended practice that you engage a property valuation professional to assess your home's fair market value.
Also, don't give yourself the false impression that home valuations will be cheap, no. Expect to pay a couple of hundred kinas for a full valuation; obviously, the rates will be much higher for upscale properties.
For a more credible value, you can involve more than one valuer to conduct separate valuations, so that you can choose the mid-value or average among the differing results. But if all the results are the same, then that’s what you have.
4. Compare sizes, square footage, condition, features and age of similar properties recently sold
Another way of calculating the fair market value of your house is to locate properties that mirror your house in terms of size, square footage, age, condition and features, and were recently sold.
What will follow is you add together the total sale price of each property you locate, then divide the result with the number of properties to get what's known as a mean sale.
The same process applies to calculating the square footage of individual properties. You begin by dividing the average sale price by the average square footage, in order to get the average value of all the properties you located, per square footage.
Now you multiply the resultant with the number of square feet in your own home which is said to give you an accurate estimate of the fair market value of your home.
5. Contact IRC for a copy of the property tax assessment for your home
Calculating the assessment yourself in order to determine the rate of taxation on your home is another alternative. This will give you a percentage of your property's value, achieved through dividing the yearly tax by the given tax rate on that day.
Additionally this is accomplished by contacting the Internal Revenue Commission for a copy of your property’s tax assessment.
For example, if the property tax rate is 2 percent, and you pay K10,000 a year in property taxes, dividing K10,000 by 0.02 would give you K500,000. This will be the government’s assessment of your property’s fair market value.
The Bottom line
All in all, fair market value is said to be an unbiased estimate of your home's true worth on the market, and it tends to offer a realistic price if your real property was to be sold in the existing market conditions.
The fair market value of a property is the pointer to which you work from to price your property for sale or inheritance. The risk of loss or tax liability is great if you don't understand this fundamental idea when determining the value of your property, in the business of real estate..
This article is meant for informational purposes only. Hausples digs into the details of a specific topic and teaches its readers all about how the real estate industry operates. Therefore, not all articles are intended to be construed as financial, or investment advice. Hausples encourages you to reach out for professional help regarding your own real estate situation.