What is Fair Market Value Anyway?

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Today’s Featured Real Estate Trivia Question

Please complete the following sentence:  The “fair market value” of my home is:

(a)   Higher than my neighbor’s.

(b)   The price that I believe my house is worth, including alotted amounts for hand-selected upgrades such as hot tub, poker room, master bath grotto, etc.

(c)   The price that my I believe my house is worth based upon an in-depth comparative analysis of smilar recently sold properties in the area, taking into account all the reasons why my house is better than the comps.

(d)   Significantly higher than all the offers that I’ve received since my home has been on the market.

(e)   The property valuation given by the King County Tax Assessor’s Office.

(f)    The price at which buyers and sellers with a reasonable knowledge of pertinent facts and not acting under any compulsion are willing to do business despite the fact that this amount may deviate significantly from answers (b), (c), or (e) above.

(g)    None of the above.

  • Konrad

    Depends on the situation…

    When its time to sell or get an appraisal for a refi then its All of the Above except for (e), because its worth MUCH more than the tax assessment!

    If I’m making small talk with my neighbors about how horrible the economy and housing markets are then it (h) Had better be worth more than what the Johnson’s sold theirs for or I’m in trouble!

    When its time to pay my taxes then its the lesser of (h) above or (i) What I paid for the house 10 years ago. But its CERTAINLY not worth what the tax assessment says it is anymore!!

  • Doug

    The answer is C. What sets a “market price” is supply and demand. So a comparative analysis of similar properties in the area give you a good sense of the demand for houses like yours.

    F sounds like a good answer, however, when purchasing or selling a home buyers and sellers often DO act under compulsion simply because it’s human nature. A particular buyer may often be willing to pay a premium for a house he or she “has fallen in love with”. Likewise, sellers are often anxious to sell a house at a discount based on their individual circumstances, like another property mortgage or similar debts to pay.

  • http://www.losangelesrealestatetalk.com Tracey-Los Angeles Real Estate.com

    All of the above apply.

  • Gary

    Fair Market Value, from a buyers point of view, is what I’m willing to spend. That takes into consideration C and F.

    Of course, FMV can’t be some low price (buyers pov) that doesn’t take into consideration the actual cost, just as FMV (sellers pov) can’t be way overpriced because someone has added extras that don’t really add substantial value.

    My personal opinion is that as the valuation of homes has gone through the roof, none of them are near to FMV. There was no reason, IMHO, for prices to skyrocket, other than people believed that there was ‘…gold in them thar walls!’ Investment fever, of a sort, took over, which of course has led to the mortgage crunch we have now. People buying more than they could afford, people selling at prices higher than the house was worth.

    Why is it that a house, built 15 years ago, that would have sold for $85-100 per square foot, is now selling for two or two and half times that amount? Granted, housing and land appreciate, but not at that level, at least, historically. Money was available, sometimes through deceitful tactics, to allow people to spend more without thought of the consequences of those actions. Hence the price of housing went through the roof.

    FMV is an illusion.

    Gary

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  • DB

    FMV, simply put, is the value agreed to by a willing seller and a willing buyer.

  • http://seattle.redfin.com/blog/author/katrina.munsell Katrina Munsell

    It’s funny, isn’t it…we all have so many ideas of what FMV *should* be, but the technical economics definition is F, what something will actually sell for. Unfortunately (or fortunately) FMV also changes over time, and in this market, I’m terribly afraid that FMV might be a healthy margin below what we would all like to think our home’s FMV is. Now, I just wish that the King County Tax Assessor would have a clue!!!