A common question asked by home owners in today’s market is how much is my house worth? Some areas of the United States have started seeing a significant recovery in the housing market; however, this is not the case for every locality. As a result, many home owners are left in the dark on exactly how much their property is worth. The old rule that one’s tax assessment is generally set to about 80% of a home’s value no longer holds true in most states in America. As a result, there are a few tools that one can use to determine a home’s value before spending money to have a professional house appraisal.
What is the Fair Market Value of a Home?
The fair market value, or FMV, or a home is the estimated market value of a home which is founded on how much a willing buyer who is knowledgeable and not under pressure would likely spend to buy the property from a similarly un-pressured seller in the current housing market. The fair market value of a property can either be based on extrapolation or precedent. FMV does differ from a home’s intrinsic value placed on it by the home owner based on real money investment into the home and personal preferences.
Since many property transactions are not searchable or publicly available for assets such as privately owned companies and personal property, the fair market value of a home must be estimated. Most FMV calculations are considered to be subjective due to the variables of time, location, comparable precedents being available, and specific evaluation criteria used in the assessment. This value directly contrasts for the imposed value placed on a home by legal authorities such as tax regulation, courts, or law that place absolute value(s) upon a homes.
When a property or home is sold during an eminent domain taking, this value is not considered to be a fair market transaction due to the seller being put under pressure to make the sale. Other sales that don’t meet the standard for a fair transaction include: foreclosure sale, liquidation sale, distressed sale, and other related transactions.
Fair Market Value Definitions
Fair market value is actually defined under United States tax law. The specific verbiage is cited in the United States Supreme Court decision in the Cartwright case:
“The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. “
Reference: United States v. Cartwright, 411 U. S. 546, 93 S. Ct. 1713, 1716-17, 36 L. Ed. 2d 528, 73-1 U.S. Tax Cas. (CCH) ¶ 12,926 (1973) (quoting from U.S. Treasury regulations relating to Federal estate taxes, at 26 C.F.R. sec. 20.2031-1(b)).
Other authoritative definitions of fair market value in the United States are also found under the Internal revenue code, additional federal statues, federal and state bankruptcy laws, and other
In Canada, fair market value of a home or property is not explicitly defined in the Canadian Income Tax Act. The definition is defined by Mr. Justice Cattanach in Henderson Estate, Bank of New Year v. M.N.R., (1973) C.T.C. 636 at p. 644. His definition is:
“The statute does not define the expression “fair market value”, but the expression has been defined in many different ways depending generally on the subject matter which the person seeking to define it had in mind. I do not think it necessary to attempt an exact definition of the expression as used in the statute other than to say that the words must be construed in accordance with the common understanding of them. That common understanding I take to mean the highest price an asset might reasonably be expected to bring if sold by the owner in the normal method applicable to the asset in question in the ordinary course of business in a market not exposed to any undue stresses and composed of willing buyers and sellers dealing at arm’s length and under no compulsion to buy or sell. I would add that the foregoing understanding as I have expressed it in a general way includes what I conceive to be the essential element which is an open and unrestricted market in which the price is hammered out between willing and informed buyers and sellers on the anvil of supply and demand. These definitions are equally applicable to “fair market value” and “market value” and it is doubtful if the word “fair” adds anything to the words “market value.”
To add to this definition, the CRA, Canadian Revenue Agency does define a working definition of fair market value as:
“ Fair market value generally means the highest price, expressed in dollars, that a property would bring in an open and unrestricted market between a willing buyer and a willing seller who are both knowledgeable, informed, and prudent, and who are acting independently of each other.”
The formal American and Canadian definitions of fair market value do have one major difference. The Canadian working definition makes use of the “highest price” of the home or the property where the U.S. definition only includes the “price.” Depending on what source you read or talk to, the Canadian use of the term “highest” may or may not make a significant difference in the valuation of a home.
Steps to Calculate Fair Market Value of a Home
Step 1 – Review the differences between fair market value and fair market price definitions. At the basic level, fair market value is the amount of money or price that the home or property should sell for on the open market. Fair market price is the amount or price that is placed on a home or property after assessing its fair market value. The fair market price takes into account market trends and could be set above or below the fair market value.
Step 2 – Take into account all factors which may inflate or reduce the home’s value such as condition of the property and scarcity of the size of the home. Real estate agents do not have a published formula that is used to determine the absolute or final market value for a home. An equivalent calculation is used when determining the fair market value of an automobile. This is calculated by reducing the value of the car by a percentage of the original cost every year the car is owned. Other factors influence the value of the car on top of this formula include modifications made to the vehicle and whether or not it is an antique.
Step 3 – Research the cost of the home when it was originally purchased. In recent years, this has become easier for homes as most purchases are searchable via basic Internet searches via Bing or Google.
Step 4 – Research the sales price(s) for equivalently sized homes in the surrounding area or zip code as the house or property that you are analyzing. Professional appraisers use a similar method when ascertaining the value of a home.
Step 5 – Calculate the average value of the three closest homes that have sold in the area of the property under analysis. This figure will be the basis of the fair market valuation of the home in question. The homes used for the analysis should be equivalent in square footage and number of bedrooms the house being analyzed.
Step 6 – Consult an experience real estate agent or expert to see if your estimate of the fair market value of the home is accurate. The expert may have insight on additional home sales in the area of the home which could either increase or decrease the value of the home.
How to Find Your Home’s Value Using Yahoo Homes
In addition to manually calculating the fair market value of a home, another technique one can use to figure out what a house is worth is to use freely available online tools. The relatively new, Yahoo Homes service provides a free means to assess the fair market value of a home.
Step 1 – Launch your computer’s web browser.
Step 2 – Enter the Yahoo Homes Home Values website by entering, http://homes.yahoo.com/home-worth in the web browser tool bar followed by clicking the “Enter” or “Return” key.
Step 3 – Enter the street address of the home in the “Address” text field.
Step 4 – Enter the city, state, and zip code in the similarly labeled text field followed by clicking the “Search” button.
Step 5 – View the value ranges of the home displayed by Yahoo on the subsequently displayed webpage.
Step 6 – Click the “5 yr” or “10 yr” home value change menu button to see a display of the fair market value of the home over a longer time frame. The same section of the website will also display the Zillow and eppraisal.com fair market values of the home.
Step 7 – Click the “Nearby Similar Homes for Sale” menu button located on the lower section of the website. This option will display similar homes for sale in the local area as the property you are assessing the fair market value.
How to Find Your Home’s Value Using the Chase Home Value Estimator
Similar to the Yahoo Homes tool, the Chase Mortgage home value estimator allows consumers to get a free fair market value estimate of their own homes or others which are of interest. The home value estimate is based on the millions of records recorded in the Chase Mortgage database.
Step 1 – Launch or open your computer’s web browser.
Step 2 – Enter the Chase Mortgage home value estimate URL in the web browser’s tool bar, https://www.chase.com/mortgage/mortgage-resources/home-value-estimator, followed by pressing the “Enter” or “Return” key on your computer’s keyboard.
Step 3 – Enter the fully qualified street address of the home in the text field to include the city, state, and zip code followed by clicking the “Get Value” menu button located on the web page.
Step 4 – View the value of the home being researched as well as the surrounding properties in the neighborhood.
Step 5 – Click on the “Local Trends” menu option to see a chart depicting the trends for the local home sale prices in the same zip code over the past year.
Step 6 – Single click on a neighboring property followed by selecting the “Search on This Property” text link to view the valuation results for neighboring houses in the same community as your home.
Find Your Home’s Value Using Eppraisal.com
Eppraisal.com is another popular home worth or valuation service available for free via the Internet. Similar to Chase and Yahoo, the service queries public records information from across the United States to provide an estimated value range. The service comes in handy for those who are looking to buy or sell a home, refinance, or just curious about current market trends.
Step 1 – Launch your computer’s web browser.
Step 2 – Enter the Eppraisal.com URL, http://www.eppraisal.com/, in the address bar of the web browser and click the “Enter” or “Return” key to navigate to the website.
Step 3 – Input the full address of the property that you are researching in the home search text box.
Step 4 – Enter the city and state of the home in the appropriate text box.
Step 5 – Click the “Get Home Value” text button.
Step 6 – View the Eppraisal and Zillow estimates of the home’s value on the subsequently displayed web page.
Step 7 – Select the “Get More Details” text link to view additional information stored on the property. The website will also list a variety of options for refinancing or purchasing mortgage rates and notional monthly payment rates on the results pages of the website.
Find out How Much Your Home is Worth at Zillow
Zillow is a real estate database available online that was founded in 2005 by Rich Barton and Lloyd Frink who were former Microsoft executives that had founded Expedia. Today, Zillow has information on more than 100 million homes across the United States. Besides being a free source to determine how much a home is worth, the site also provides insight on the value changes of a home over time, aerial views of properties, and the cost or prices of equivalent houses in the same area. When public data is available on a property, the square footage, number of bedrooms, and bathrooms is also included in the listing of the property.
Step 1 – Launch or open your computer’s web browser. Then, enter Zillow.com in the web browser tool bar followed by pressing the “Enter” or “Return” key.
Step 2 – Enter the property address in the primary search text block located in the center of the Zillow home page followed by clicking the search menu button.
Step 3 – Click the property address on the subsequently displayed screen to expand the property listing after viewing the Zillow property estimate of value.
Step 4 – Click listings on surrounding properties to view the Zillow estimate of fair market value for the house. Zillow will also display the notional range of cost for monthly mortgage payments or rental values for each property selected.