How To Calculate The Fair Market Value (FMV) Of A Home

1. Start with online valuation tools

Online home value calculators use the information you provide about your home, along with information gleaned from public records, to calculate an estimated value of the property. They’re a simple and convenient way to get a ballpark idea of what your home might be worth.

For example, PennyMac’s value estimator takes the address of your home and returns an estimate of the overall value, price per square foot, property details, sales history, and value history.

If you want more than just an estimate, request an offer from us at any time; it’s free and there’s no obligation to accept. Learn more about how we calculate the value of your home.

Example of an Opendoor offer.Example of an Opendoor offer.

Pros of online valuation tools:

  • Most are free and easy to use.
  • They can quickly give you an estimate of your home’s value, often without having to provide a lot of info about your home.
  • Many valuation tools update regularly, which is useful if you need to tweak your list price during the selling process.

Cons of online valuation tools:

  • These tools are designed to provide an estimate and may not take into account unique aspects of your home that appeal or don’t appeal to buyers.
  • Valuations can vary from one tool to the next, depending on which factors the tool uses to determine value.
  • These tools generally don’t take into account things like renovations or repairs, which can significantly influence your home’s value.

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When might a home not sell for fair market value?

There may be times when a home is sold above or below it’s fair market value. For instance, if a homeowner is facing an expensive family medical emergency and can’t make their mortgage payment, or they need cash immediately to pay hospital bills, that is not a normal or typical selling condition. The homeowner might be compelled to sell the house below its fair market value.

Essentially, if either party is reacting to outside pressures — medical emergency, loss of a job, death in the family — while buying or selling a home, the home’s price point might drift away from its fair market value.

Sold properties are always going to be your best indicator of value. Because there are obviously active properties and there can be properties that are currently under contract. But there’s a reason why the appraisers are using the sold properties in their appraisal and that is a definitive value versus a value that’s yet to be determined. Kent Pratt Real Estate Agent Close Kent Pratt Real Estate Agent at Windermere Real Estate Years of Experience 30 Transactions 62 Average Price Point $360k Single Family Homes 52

How to Determine the Fair Market Value of a Home

  • Use an Online Fair Market Value Calculator
  • Run a CMA Report
  • Get an Appraisal
  • Calculate the FMV of the Home Yourself

In order to determine the fair market value (FMV) of a home, it's best to use multiple methods and compare the results. Some of the most popular methods include using an online FMV calculator, running a CMA report, or getting an appraisal. You can even determine fair market value yourself if you look up comps and crunch the numbers. 

1. Use an Online Fair Market Value Calculator

Whatever your reasoning, if you are curious about what the FMV of a home is, the most natural place to start is with a fair market value calculator. There are a number of options online, but some will be more accurate than others. Make sure to fill in all information correctly and include any upgrades made to the home, as inaccurate information will lead to swayed results. 

2. Run a CMA Report

CMA stands for Comparative Market Analysis and compares your property to other similar properties in order to statistically break down what your home may be worth. By matching comparable properties that have similar features (like the number of bedrooms, size of the lot, and previous selling prices), a CMA is a good way of determining the fair market value of a home. Comparative market analysis is also the most widely used resource for real estate agents when verifying a realistic FMV for their clients. 

3. Get an Appraisal

This option is well-known because it’s an essential step that is often required when a home is active under contract. Mortgage companies will usually obligate buyers to attain an appraisal of a home in order to make sure the FMV is as accurate as possible. Sellers can also get their home professionally appraised before listing it in order to determine what they can expect to sell the property for. However, appraisals often cost between $300 and $600, and since they are usually required for buyers by mortgage companies, a seller will more often use other, cheaper methods of determining FMV to decide upon a listing price. 

4. Calculate the FMV of the Home Yourself

This option isn’t popular because it requires individuals to have some knowledge of exactly how to calculate FMV. But some people like to take matters into their own hands, and by crunching the numbers yourself, you can have full insight into how you determined the FMV of your property and whether or not you believe it to be reliable. If you want to calculate your own FMV, you’ll need to have an understanding of recently sold properties in your area that are similar to your own. It’s best to look up how to calculate FMV in depth. You can also determine FMV by requesting a copy of the property tax assessment of your home or determining it yourself from the rate of taxation. 

All in all, whether you are a buyer or a seller, fair market value is an integral part of any transaction. If you are listing a home, you need to make sure that you have a good overview of FMV in order to determine an asking price. Similarly, as a buyer, determining the reliable fair market value of a home is essential in making sure you get a good deal.

How fair market is calculated

Whether an agent is preparing a comparative market analysis (CMA) or an appraiser is completing an appraisal report, fair market value is often calculated by taking the value of three or more comparable homes, or comps, that have recently sold and obtaining an average, Garrity says.

For an appraisal, an appraiser examines this group of homes and factors in any positives or negatives to each based on certain features. For example, if the home in question were 1,500 square feet and one of the comps were 1,250 square feet, it could be a plus for the comp, but a minus for the home being appraised.

“This process helps paint a more accurate picture of what a home’s value is, as most homes are different from one another,” Garrity says.

Which value matters most to home sellers?

Appraised value is typically considered most important to sellers because the property is expertly evaluated based on its specific merits and deficits in comparison to other similar properties.

What is fair market value used for? 

  • Insurance policies and claims – insuring or rebuilding a home after a disaster
  • Investment assets – determining real estate value for your investment portfolio
  • Legal disputes – assessing the value for a bankruptcy or divorce
  • Taxes – assessments for calculating property taxes
Source: (Toa Heftiba / Unsplash)
Source: (Toa Heftiba / Unsplash)

How To Calculate The Fair Market Value Of A Home

Unlike other aspects of buying and selling real estate, there isn’t a defined formula for determining the fair market value of a home. If only it were that easy!

Because pieces of real estate are sold on the open market, the value of these financial assets are subject to the fluctuations of that market. Namely, supply and demand. Because of this, the buyer and seller’s individual circumstances and desire to buy and sell will greatly impact the fair market value of a home. This is why “fair market value” isn’t always what a piece of real estate is actually worth – it may depend upon what it is worth to either the buyer or seller.

With this in mind, here are the following ways a rough FMV can be calculated:

  • A willing buyer and a willing seller agree upon a property’s value based on their reasonable knowledge of the property and current market trends.
  • Comparative market analysis of other, similar properties in the area.
  • Having an appraiser determine the property’s valuation. While not the final word on FMV, the appraised value can often suffice in the event a fair market value is needed. An appraisal also reinforces what a lender will allow a consumer to borrow on a home which often becomes by default an approximation of value on the open market.
  • Calculate a rough price per square foot. Look at comparable homes in your neighborhood then divide by square footage. Then take that dollar amount and multiply by the number of square feet in your home.

What Is Fair Market Value used for in general

Buyers and sellers use fair market values as the basis for their negotiations on a potential home sale. But these values are used for more than sales purposes. Sellers can use fair market values to calculate the amount of equity available in their homes. Meanwhile, buyers use fair market values to determine whether a particular home would be a suitable investment for them.

Fair market values are also used by government agencies and financial institutions too. For instance, if you need to refinance your home loan, the bank will use the fair market value to negotiate the terms of the refinancing agreement. And when you file a homeowner’s insurance claim, the carrier may use the home’s fair market value to calculate a compensation estimate for the claim.

2. Conduct a CMA

Run a comparative market analysis (CMA) on the property. A CMA will match your property to comparable properties to build a statistical breakdown of what your home may be worth, in relation to similar nearby properties with matching or similar features. Fair market value largely factors in other properties, much like a “blue book” compares similar vehicle features to comprise an estimated value for autos.

Key takeaways

The prospect of closing the deal on a sale becomes much less intimidating when you’re heading to market with a carefully researched valuation in your back pocket. Remember, the goal is to sell your home at the right time and the right price according to your needs.

Rebecca Lake

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Opendoor always encourages you to reach out to an advisor regarding your own situation.

Other common methods to determine FMV

Aside from the comps strategy, appraisers sometimes use what’s called the cost approach to determine fair market value, especially when the home is unique and there aren’t many comps to weigh it against. In the cost approach, an appraiser considers the previous sale price of the lot and estimates the cost of construction to replace the home on the property, factoring in depreciation and subtracting that from the value.

A lesser-used third method is known as the income capitalization approach, which is generally reserved for income or rental properties, and is based on how much income can be generated from the home.

Fair market value in today’s market

The comps strategy is a popular way to determine a home’s fair market value, the price a buyer is willing to pay in a given market.

However, in many markets today, there are homes selling above fair market value, so using comps to craft an offer strategy may not result in a successful outcome for buyers in multiple-offer situations.

“Many sellers throughout the country are pushing their asking prices to see what the market will bear, given the low supply/high demand market we are currently experiencing,” Ameer says. “This approach does not work as well in a slowing market, where inventory levels are building and afz seller is often competing with a lot of options in their price range, including new construction.”

Under more balanced conditions, though, agents and appraisers often rely on the comps method, and sometimes the cost or income utilization approaches, to estimate fair market value. If you’re curious about the fair market value of your home, either formula would be a good place to start.

The Bottom Line

Your home’s fair market value can impact its selling price and everything from taxes to insurance claims. While there’s no exact formula for calculating FMV, you can roughly determine it through comparative market analysis (CMA) – also known as “comps”and/or the appraised value.

Having trouble selling your home? The price might not be the only problem. Read some reasons why a house isn’t selling and see if there are other issues you may be overlooking.

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