Fair Market Value For Home Buyers

A home can be listed at any price by a seller.  It can be overpriced, it can be priced right at fair market value or it can even be under priced as we are seeing in this hot seller’s market.

You as a home buyer have invested the time to get pre-approved for a home mortgage, viewed multiple homes with your buyer’s agent and now have found a home you like!!  Now its time to put in an offer on the home you like.

Of course most home buyers are willing to pay what is fair for the house, but they certainly don’t want to overpay.

This is where understanding the fair market value of a home is important.  Having a proper understanding of what a home is worth that you are interested in, will dictate what you most likely pay to be able to successfully complete its purchase.

Fair market value is calculated by a comparative market analysis prepared by an agent representing you as a buyer’s agent.  It compares similar homes that have sold that are close to the property you are interested in.

Market value is not typically one number it is a range because no two houses are exactly alike. For example a home in the $400,000 price range, might have a fair market value of $380k to $400k.

So why does fair market value matter?  Most likely to secure the house of your dreams you are going to have to pay fair market value.  A home seller represented by an experienced listing agent will probably not sell a $380k to $400k home for $360,000.  Remember fair market value is what a group of buyer’s would be willing to pay.  So another buyer will probably step up and pay if you don’t.

Understanding fair market value will help you structure an offer and a negotiating strategy that will help you get the home you want. On top of fair market value you have to take into account other factors like the strength of the real estate market…. buyer’s market, seller’s market, neutral market….   Your buyer’s agent can educate you on all of this.

In a hot sellers market you do not have time to negotiate a low ball offer. Most likely multiple offers will be tendered and you will be competing with other buyers.

Tip: The buying public is not stupid a home that is priced slightly below fair market value will gain a lot of attention from home buyers and generate multiple offer over asking, even in a soft market.  All it takes is just a few percentage points below market.

True Buyer Story of a Buyer Misunderstanding Market Value

This past year I had a home that was built in 2003 but needed about $65k worth of work to bring into good shape.  Fixed value was around $285,000 and I had the home marketed at $220,000.  The seller received a ton of offers between $190k and $200.

But there was one buyer, who went to view the house 5 times spending hours each time and bringing contractors.  Their first offer was $85,000 and then they immediately reduced it to $65,000.  Land value alone on this house was $85k to $90k and this house was no where near a tear down.

Point being this buyer wasted about 20 hours on this one home to only submit an offer that laughable.  I always tell my home sellers every offer is an opportunity to negotiate an acceptable offer.  But in this case we flat out rejected it.

We did go on to sell the house for close to asking and the new owner now has a beautiful home after doing about $55,00 in renovations.

I am not sure how the low ballers felt after losing the house.  I know on a couple of occasions I was there and they loved the house and its potential as well as the superior neighborhood it was in.

Failure to understand fair market value cost them a home they loved and wasted a ton of their valuable time.