Fair market value (FMV) is the estimated price a home would sell for on the open market between a willing buyer and seller. Establishing that amount, however, isn’t simple or always easy.
Buyers want the best value, while sellers want the highest price. Determining fair market value helps balance these goals.
Fair market value is important for buyers, sellers, lenders, tax authorities, appraisers, and investors who need accurate valuations for decisions and planning.
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We’ll walk you through five methods to estimate fair market value, ranging from free online tools to professional appraisals.
What is fair market value?
Fair market value is the price a property would sell for current market conditions, assuming both buyer and seller seek a fair price that works for both of them. It’s not the same thing as appraised or assessed value.
A home's assessed value is the yearly estimation of its real value. Assessed value is mainly used for tax purposes, while FMV has many additional applications.
The appraised value is a property’s worth at a specific time as determined by a professional appraiser based on factors like condition and size. Mortgage lenders typically order appraisals to help them evaluate loan risk.
The fair market value of a home is most often used in the following scenarios:
- Home sale
- Divorce settlements
- Property taxes
- Refinancing
- Calculating returns as a real estate investor
For example, county officials usually calculate fair market value to estimate the amount of property taxes the homeowner needs to pay.
A home's fair market value is typically compared to its current price. If you're wondering how to calculate fair market value, the options available to you include everything from an online valuation tool to a comparative market analysis (CMA).
Ways to determine fair market value
Want to know how to determine the fair market value of a home? For a quick and free ballpark estimate, there are plenty of online valuation tools that calculate fair market value. However, these tools are not always accurate.
When you're trying to price your home for sale, a comparative market analysis or official appraisal (which costs between $300-500) are better options.
If you’re unsure which method to use, here’s a quick overview:
| Method | Cost | Accuracy | Best for |
|---|---|---|---|
| Online valuation tool | Free | Low-moderate | Ballpark estimate |
| CMA | Free | Moderate-high | Pre-listing |
| Appraisal | $300 - $500 | High | Lending, selling |
| FHFA tool | Free | Moderate | Historic analysis |
| Seasonal pricing | Free | Moderate-high | Deciding when to list |
1. Start with a free online home value estimator
A simple "how much is a home worth?" online search reveals dozens of home value estimators. Better known as automated valuation models (AVM), these tools will help you determine the value of a home for free, though they are a ballpark figure only.
An AVM uses basic property details like location, square footage, and bed/bath count to estimate value. Popular options include Zillow’s Zestimate, Redfin Estimate, and tools from banks like Chase.
AVMs aren’t perfect. Many are designed for marketing and may provide estimates even based on limited or outdated data.
But AVMs can be a great starting point if you're not using them for a sales price and are simply curious about how much your home might be worth. Clever’s online home value estimator can give you an idea of what your house may fetch on the open market.
Just enter your address below to find out what your home could be worth today.
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2. Request a comparative market analysis
A comparative market analysis (CMA) reviews homes sold in your area over the past 6 to 12 months. It’s a trusted way to estimate home value in fast-changing neighborhoods. Real estate agents typically provide CMAs for free.
Every agent’s CMA differs, but a professional estimate should include comparable properties with key similarities:
- Similar square footage
- Similar style
- Comparable number of bedrooms and baths
- Located in the same ZIP code
- Similar upgrades and updates
A good CMA typically includes properties that have:
- Equal square footage
- The same number of bedrooms and bathrooms
- A comparable architectural style
- Similar upgrades or recent renovations
- A location in the same neighborhood or school district
These factors help ensure the comparison is as accurate and relevant as possible.
A CMA is more reliable than online estimates because a local expert considers current market trends and unique property features that automated tools often miss.
Want to know what your home is worth? A Clever Partner Agent can provide you with a quality CMA. Find an agent.
3. Hire a professional appraiser
A home appraisal is an estimate of a property’s value as determined by a licensed appraiser. Expect to pay between $300 and $500 for this service, depending on the market.
Appraisals are typically required by lenders during the mortgage process, but they are also commonly used by homeowners pre-listing to determine an accurate asking price.
Appraisers are licensed professionals who adhere to the Uniform Standards of Professional Appraisal Practice (USPAP), ensuring their evaluations are consistent, accurate, and conducted ethically.
There are two common approaches an appraiser uses. The first, the comparison approach, is similar to a CMA. An appraiser looks at the cost of similar houses in the area that have recently been sold. They then adjust for variations by adding or subtracting the value of different upgrades or features.
The second is the cost approach, which is an estimate of what replacing or reproducing the improvements in the house would cost. That cost is then added to the value of the land to complete the appraised value.
4. Try the FHFA price index calculator
If you're wary of AVMs, but you are on the hunt for a quick way to value your home, try the FHFA price index calculator. The calculator uses a more scientific approach and is often more accurate than AVMs.
The FHFA calculator is based on the repeat-sales methodology, which tracks the price changes of the same homes over time by comparing their sale prices at different points. This method reduces bias from differences in home characteristics by focusing on how individual properties appreciate or depreciate in value.
It only works for conforming loans, which meet the size and credit standards set by Fannie Mae and Freddie Mac.
The tool is armed with millions of transactions. Since the 1970s, the FHFA has tracked the value of a house from one sale to the next, and then calculated the fluctuation of value in that market.
However, the tool has some drawbacks because it isn't adjusted seasonally or for inflation.
5. Factor in local and seasonal market trends
Fair market value (FMV) changes all the time because of things like supply and demand, interest rates, and the time of year. For example, the same house might be valued lower in winter when fewer buyers are looking but could be worth more in spring when the market heats up and more people are searching for homes.
This means timing can play a big role in how much your home is worth at any given moment. If you're looking to buy a house, it's best to look in January. However, if you’re looking to sell, listing in May or June is your best option.
Clever Partner Agents are experts when it comes to determining the fair market value of your home. They can guide you through every step of the valuation process and ensure you get the best value depending on the prevailing conditions.
When do you need to know a home's fair market value?
Understanding the fair market value of a home can be beneficial in the following situations:
- Selling a house: Identifying your home's fair market value allows you to list it at a price that will sell on the open market.
- Buying a home: Calculating the fair market value of a home allows you to determine if the listing price is reasonable before you make an offer.
- Estate planning or divorce: Fair market value is used in divorce settlements to fairly divide property between spouses. In estate planning, it helps estimate what beneficiaries will receive.
- Appealing property taxes: If you believe that you're paying too much in annual property taxes because of an inaccurate valuation, you can appeal with the fair market value.
- Refinancing or getting a home equity loan: Your home's fair market value can help you secure a new loan with a refinance or calculate what your loan-to-value ratio will be for a home equity loan.
Want a more accurate estimate of your home's value?
Whether you're planning your estate or getting ready to list your home on the market, knowing the true value of your home allows you to make more informed decisions.
You can get a free CMA from an experienced local real estate agent, who can find the best recent comparable sales and help you understand how your home might perform in your market. Talk to a local real estate expert; fill out our short quiz.