How much a home is worth is an important question whether you’re buying or selling a house. If you are purchasing, you don’t want to pay more than the fair market value. If you are selling, you don’t want radio silence from potential buyers owing to the wrong list price.
But what is a fair market price? It’s what a house would fetch in an open and fair market. Establishing that amount, however, isn’t simple or always easy.
Here are five ways real estate pros determine the fair market value of a home:
1. Use Online Valuation Tools
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 get a ballpark figure. They rely on property details such as location, number of bedrooms and baths, and square footage to determine the cost.
A word of caution though, AVMs are not perfect. Most of these tools are for marketing and lead generation purposes. They will return a value even with limited data.
AVMs with confidence scores have increased accuracy, and they are a step in the right direction. By and large, online valuations are a good launch point but talk to a local real estate agent for more insight.
2. Comparative Market Analysis
A comparative market analysis — also known as CMA — is a detailed analysis of all homes in the area that sold in the last 6 to 12 months. It is a widely used tool when it comes to determining the fair market value of property in hyperlocal and ever-shifting areas.
Every real estate agent’s CMA will be different, but there are things that you should expect to find in a professional estimate. Once you have a list of the top realtors in your area, ensure their CMAs have the following:
- Properties with equal footage
- Properties of similar style
- Properties with the same number of bedrooms and baths
- Properties located in the same area
- Properties with similar upgrades and updates
3. Professional Appraisal
A home appraisal is an estimate of a property’s value. Expect to pay between $200 and $500 for this service, but it is the closest you will come to discovering the exact fair market value.
There are two common approaches an appraiser uses. The first, the comparison approach, is similar to the 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 to 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. Use the FHFA Price Index Calculator
If you are 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 tool uses a repeat sales method and 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 as it is not adjusted seasonally and for inflation.
5. Pricing Based on Seasonal Shifts
Markets experience a spike during spring and summer months as parents look to settle before school starts up. You can increase the listing price of your home during these months because more buyers are competing for houses.
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.