How does one determine “fair market value” on a home?

Asked by Johnny, New York, NY Thu Jul 2, 2009

I recently made a bid on a home that I fear was too high. It was below the asking price but I fear that it does not reflect the decline in the home values of the area. When the bank does its appraisal they may adjust what they will lend based on “fair market value” I want to retract my bid and issue a new bid based on FMV. How does one do this or where can I research this? thanks

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Theresa Wackowski’s answer
Theresa Wack…, Agent, Yorktown, VA
Wed Jul 29, 2009
Fair Market Value is derived by what price similar homes are selling for within the same area and with the same perimeters. Appraisers are having a difficult time with home appraisals because many homes are setting on the market for an extended amount of time or they are selling under distress conditions. However, it is to my understanding that appraisers are not to take into account a home that has been sold under distress conditions.
0 votes
Jared Hammond, Agent, Harbor Springs, MI
Fri Jul 3, 2009
Just to clarify or emphasize what I mentioned below...

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."

"Other examples of sales that would not meet the test of fair market value include a liquidation sale, deed in lieu of foreclosure, distressed sale, and similar types of transactions. There is no longer any such value in real estate appraising as Fair Market Value, the correct term is Market value" - wikipedia (also checked in my old real estate course book)

In lamens terms: Market value is set by the buyer. It is what the buyer is willing to pay for real estate or how much the buyer values the property. Because not every buyer values property the same, it is up to the individual person to determine.

Not all comparables should be used in a CMA. Recently sold homes that are comparable in size, features, bedrooms, etc. may be foreclosures/ distressed sales/ or short sales- make sure your agent isn't using these as comparables.

That being said- It is good to know what these properties have sold for as well, because you may be able to get a similar property for less by purchasing a bank owned or short sale property.

If you're worried about your offer...most people make their offers contigent upon financing, an acceptable home inspection, etc, and it can be pretty easy to back out under those contingencies. Usually, this is standard and written in the purchase agreement- most agents use pre-written agreements with these contingencies available to "check" with a time frame to allow for inspection...all making it easier for buyers to back out in case something is wrong. If you have problems backing out...you've got "lawyer issues."

Let us know what happens..what you find out...what the CMA tells you...


http://re.harborportal.com
http://www.cbgreatlakes.com/jared.hammond
1 vote
Jenet Levy, Agent, New York, NY
Thu Jul 2, 2009
If all you did is make an offer, you can easily back out. A deal is not a deal until there is a signed contract accompanied by a deposit. Have you signed a contract and given a deposit? If you have gone that far, talk to your attorney about your desire to lower your offer. This also shows why having a buyer's agent represent you is the best thing to do - they know the market and not only help you loctate the property but negotiate for you. The fair market value is based upon the current comps and comps of what has recently closed.
1 vote
Jared Hammond, Agent, Harbor Springs, MI
Thu Jul 2, 2009
You should have your Realtor look up what similar homes have recently sold for to give you a better idea of what is "fair." You should also consider other things like how much work it needs to make it liveable or enjoyable, etc. GET A CMA and work with an agent representing your best interest! They should be able to help you- this should have been done prior to submitting an offer.

Also, look up county tax information. It's public information, and often free to look up online. From there you can see what the county assessed the property at, what kind of taxes you might have to pay, etc.


http://re.harborportal.com
http://www.cbgreatlakes.com/jared.hammond




A CMA is not an appraisal, however. Only an appraisor can give you an apprasal, and the price they come up with is going to vary depending on who does it. There is no magic formula.
1 vote
Jane Henry, Agent, Kingsport, TN
Thu Jul 2, 2009
Johnny -- Do you have a binding agreement already -- a legally binding contract signed by both Seller and you, the Buyer? If so, here's my suggestion. Before you panic and definitely before you pay an attorney, carefully read the Purchase Contract you used to submit your offer. If you worked through a realtor or used a basic real estate purchase contract, it likely states that the house must appraise for "at or above the purchase price." Your lender will most likely require an appraisal before final loan approval. If they do not, request one and see that fee as money well spent to protect yourself. An appraisal should give you a picture of "fair market value" for that property at the time the appraisal is done. If the contract already states that the property must appraise, you're protected because if it does not appraise, you should have the ability to withdraw your offer and get your earnest money back. So, check your contract first. If your contract does not state that the property must appraise for the purchase price or above, then consider other ways out of the contract and call an attorney if necessary. Good luck!
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