{"id":13420,"date":"2019-12-30T13:23:12","date_gmt":"2019-12-30T21:23:12","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=13420"},"modified":"2024-05-29T13:17:33","modified_gmt":"2024-05-29T20:17:33","slug":"buyer-what-is-fair-market-value","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/","title":{"rendered":"All\u2019s Fair in Love and \u2026 Market Value? What is Fair Market Value Means in Real Estate"},"content":{"rendered":"<p>If one thing is certain about real estate, it\u2019s that the concept of a \u201cgood deal\u201d is highly subjective. Many factors are at play when it comes to buying a home, including <a href=\"https:\/\/www.homelight.com\/how-much-house-can-i-afford\">your budget<\/a> and <a href=\"https:\/\/www.homelight.com\/blog\/buyer-what-house-can-i-afford\/\">what you\u2019re looking for<\/a> in terms of size, features, and the location of a property.<\/p>\n<p>What feels like a great deal to you on a three-bedroom house with lake views in a quiet neighborhood may be someone else\u2019s idea of far too expensive, which is why the concept of \u201cfair-market value\u201d exists in real estate.<\/p>\n<p>As a buyer, understanding the difference between \u201cfair-market value\u201d and \u201cmarket value\u201d means that you\u2019ll be better equipped to avoid overpaying for a house \u2014 or, if you\u2019re in a situation where you love a property so much that you simply <i>must<\/i> have it and are willing to pay more in order to get it, you\u2019ll enter the transaction with open eyes and be able to offer an amount that still feels fair to you.<\/p>\n<p>Let\u2019s dive into the world of market value and what makes it fair (or otherwise!).<\/p>\n<figure id=\"attachment_28675\" aria-describedby=\"caption-attachment-28675\" style=\"width: 700px\" class=\"wp-caption alignnone\"><a href=\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value.png\" target=\"_blank\"><img decoding=\"async\" width=\"666\" height=\"381\" src=\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-666x381.png\" class=\"attachment-content size-content\" alt=\"A neighborhood where you might want to know the fair market value of homes.\" srcset=\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-666x381.png 666w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-64x37.png 64w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-128x73.png 128w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-192x110.png 192w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-432x247.png 432w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-500x286.png 500w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value.png 700w\" sizes=\"(max-width: 666px) 100vw, 666px\" \/><\/a><figcaption id=\"caption-attachment-28675\" class=\"wp-caption-text\">Source: (Hoyt Roberson \/ Unsplash)<\/figcaption><\/figure>\n<h2>What is fair-market value?<\/h2>\n<p>The International Society of Appraisers <a href=\"https:\/\/www.isa-appraisers.org\/about\/blog\/details\/344\/defining-fair-market-value\">defines fair-market value<\/a> as, \u201cThe price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.\u201d<\/p>\n<p>To put it more simply, fair-market value is the price that a home would sell for in an open market. Let\u2019s look a bit closer at that definition:<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Willing buyer and seller:<\/b> Both parties are entering into the transaction willingly and looking out for their own best interests. The seller is trying to get fair compensation for their home, and the buyer is hoping to pay a reasonable amount for that home. In a situation where one party is <i>unwilling<\/i>, such as a seller trying to avoid foreclosure by selling off the home, that could negatively impact the home\u2019s price, and therefore not reflect fair-market value.<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Neither being under any compulsion<\/b>: Neither party is under any undue influence \u2014 such as needing to move quickly \u2014 and both are willing to stay the course to meet their goals. A buyer who needs to move within two weeks for a new job, for example, may need to pay above fair-market value for a home due to their abnormally short purchasing timeline.<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Both having reasonable knowledge of relevant facts<\/b>: In a fair-market transaction, both parties are going into the transaction with eyes wide open and with proper representation for their interests. If a buyer forgoes an inspection, for example, they may pay more than fair-market value for the home.<\/li>\n<\/ul>\n<p>Fair-market value generally does not take into account the <i>individual circumstances and preferences<\/i> of buyers. For example, a home with an underground wine cellar that would be perfect for Buyer A\u2019s cheesemaking hobby could be worth more to them than what Buyer B or Buyer C is willing to pay. The fair-market value isn\u2019t necessarily what Buyer A is willing to pay in that scenario, but what an <i>average buyer<\/i> might pay.<\/p>\n<p>Needless to say, pinning down fair-market value in real estate is not easy in any market, but when the market is especially hot (there aren\u2019t many houses for sale) or cool (there aren\u2019t many interested buyers), determining a home\u2019s fair-market value becomes increasingly difficult.<\/p>\n<h2>What\u2019s the difference between fair-market value, market value, and appraised value?<\/h2>\n<p>If it seems excessive for a home to have three different standards of valuation &#8230; well, it can be confusing, for sure \u2014 but that\u2019s why we\u2019re here to help.<\/p>\n<p>Let\u2019s break it down:<\/p>\n<h3>Fair-market value<\/h3>\n<p>At its core, fair-market value is what a home would <i>hypothetically<\/i> sell for on the market if neither the buyer or seller felt any pressure to accept a deal, and both had reasonable knowledge about the condition and features of the home. No frills!<\/p>\n<h3>Market value<\/h3>\n<p>Market value, on the other hand, is what a house will <i>actually<\/i> sell for according to <a href=\"https:\/\/www.homelight.com\/blog\/sellers-vs-buyers-market\/\">current conditions<\/a> of the local market. Is it a <a href=\"https:\/\/www.homelight.com\/blog\/what-is-a-sellers-market\/\">seller\u2019s market<\/a>, where buyers are lining up to make offers on every home because there are so few available, or is it a buyer\u2019s market with lots of houses to choose from and no pressure to make a decision quickly (at least on the buyer\u2019s side)?<\/p>\n<h3>Appraisal value<\/h3>\n<p>The <a href=\"https:\/\/www.homelight.com\/blog\/what-appraisers-look-for-in-a-house\/\">appraisal process<\/a> is an essential one if you\u2019re <a href=\"https:\/\/www.homelight.com\/blog\/buyer-what-is-a-mortgage\/\">using a mortgage<\/a> to buy a home. Banks need to protect themselves, so a third-party appraiser will be sent in to evaluate a home\u2019s value in relation to the amount you\u2019re trying to finance.<\/p>\n<p>Appraisers look at the general characteristics of a home, it\u2019s overall condition, improvements to upgradeable areas like kitchens and bathrooms, the location of the property, and recent sales of <a href=\"https:\/\/www.homelight.com\/blog\/what-does-a-comparative-market-analysis-do\/\">comparable homes<\/a>.<\/p>\n<h3>So, which value matters most?<\/h3>\n<p>The most important valuation is, ultimately, your own. What <i>you<\/i> are willing to pay for a particular home may be more or less than what the market calls for, and what an appraiser has to say may not be as relevant if you have a sizable <a href=\"https:\/\/www.homelight.com\/blog\/buyer-average-down-payment-for-house\/\">down payment<\/a> or are <a href=\"https:\/\/www.homelight.com\/blog\/buyer-cash-offer-on-house\/\">paying cash<\/a>.<\/p>\n<p>\u201cThere\u2019s no exact science to it,\u201d says <a href=\"https:\/\/www.homelight.com\/agents\/brian-beatty-sc-hl12680739\">Brian Beatty<\/a>, a top agent in <a href=\"https:\/\/www.homelight.com\/states\/sc\">Charleston, South Carolina<\/a>. \u201cReal estate is and always will be an emotional process. People value different things, and that doesn\u2019t always have to mean the upgrades or finishes or square footage in a home.\u201d<\/p>\n<section class=\"building-block bb-type-default bb-agent-quote bg-none\" id=\"bb-1\"><div class=\"body block\"><div class=\"container-fluid\"><div class=\"block-content\">            <blockquote class=\"post-blockquote\">\n                <q>The best way to determine the market value is to look at past sales, showing the customer what properties have sold for so they understand what their price point gets them. That\u2019s the best way to start the process.<\/q>\n                                    <div class=\"contributors\">\n                        <ul class=\"list\">\n                            <li>\n                                <div class=\"inner\">\n                                    <div class=\"opener\">\n                                        <div class=\"avatar\">\n                                                                                            <img decoding=\"async\" src=\"https:\/\/media.homelight.com\/uploads\/agent\/picture\/629046\/normal_Rudy_2010_20low_20res.jpeg\" alt=\"Rudy Dudon\">\n                                                                                    <\/div>\n                                        <div class=\"info\">\n                                            <strong>Rudy Dudon<\/strong>\n                                            <span>Real Estate Agent<\/span>\n                                        <\/div>\n                                    <\/div>\n\n                                    <div class=\"contributors-detail-modal\">\n                                        <div class=\"holder\">\n                                            <a href=\"#\" class=\"icon-close close\">\n                                                <span class=\"screen-reader-text\">Close<\/span>\n                                            <\/a>\n                                            <div class=\"top\">\n                                                <div class=\"avatar\">\n                                                                                                            <img decoding=\"async\" src=\"https:\/\/media.homelight.com\/uploads\/agent\/picture\/629046\/normal_Rudy_2010_20low_20res.jpeg\" alt=\"Rudy Dudon\">\n                                                                                                    <\/div>\n                                                <div class=\"info\">\n                                                    <strong>Rudy Dudon<\/strong>\n                                                                                                            <span>Real Estate Agent at Michael Saunders & Company<\/span>\n                                                                                                        <div class=\"rating\">\n                                                                                                                    <span>5.0<\/span>\n                                                            <ul class=\"star-list inline-list\">\n                                                                                                                                    <li>\n                                                                        <img decoding=\"async\" src=\"https:\/\/www.homelight.com\/blog\/wp-content\/themes\/ccprototypev5\/images\/star-solid.svg\" width=\"16\" alt=\"star\">\n                                                                    <\/li>\n                                                                                                                                    <li>\n                                                                        <img decoding=\"async\" src=\"https:\/\/www.homelight.com\/blog\/wp-content\/themes\/ccprototypev5\/images\/star-solid.svg\" width=\"16\" alt=\"star\">\n                                                                    <\/li>\n                                                                                                                                    <li>\n                                                                        <img decoding=\"async\" src=\"https:\/\/www.homelight.com\/blog\/wp-content\/themes\/ccprototypev5\/images\/star-solid.svg\" width=\"16\" alt=\"star\">\n                                                                    <\/li>\n                                                                                                                                    <li>\n                                                                        <img decoding=\"async\" src=\"https:\/\/www.homelight.com\/blog\/wp-content\/themes\/ccprototypev5\/images\/star-solid.svg\" width=\"16\" alt=\"star\">\n                                                                    <\/li>\n                                                                                                                                    <li>\n                                                                        <img decoding=\"async\" src=\"https:\/\/www.homelight.com\/blog\/wp-content\/themes\/ccprototypev5\/images\/star-solid.svg\" width=\"16\" alt=\"star\">\n                                                                    <\/li>\n                                                                                                                            <\/ul>\n                                                                                                            <\/div>\n                                                                                                            <span class=\"note\">Currently accepting new clients<\/span>\n                                                                                                    <\/div>\n                                            <\/div>\n                                                                                            <div class=\"btm\">\n                                                    <ul class=\"exp-list inline-list\">\n                                                                                                                    <li>\n                                                                <span>Years of Experience<\/span>\n                                                                <strong>22<\/strong>\n                                                            <\/li>\n                                                                                                                    <li>\n                                                                <span>Transactions<\/span>\n                                                                <strong>480<\/strong>\n                                                            <\/li>\n                                                                                                                    <li>\n                                                                <span>Average Price Point<\/span>\n                                                                <strong>$949k<\/strong>\n                                                            <\/li>\n                                                                                                                    <li>\n                                                                <span>Condominiums<\/span>\n                                                                <strong>331<\/strong>\n                                                            <\/li>\n                                                                                                            <\/ul>\n                                                <\/div>\n                                                                                    <\/div>\n                                    <\/div>\n                                <\/div>\n                            <\/li>\n                        <\/ul>\n                    <\/div>\n                            <\/blockquote>\n        <\/div><\/div><\/div><\/section>\n<h2>When does fair-market value come into play in a real estate deal?<\/h2>\n<p>Fair-market value is used in real estate to assess what a home is worth for property taxes, in the event of an insurance payout, or during a legal dispute (such as a divorce).<\/p>\n<p>Otherwise, if you\u2019re buying or selling a home, you\u2019re probably going to be working with plain old market value \u2014 especially in a <a href=\"https:\/\/www.homelight.com\/blog\/what-is-a-sellers-market\/\">hot market<\/a> like we\u2019ve seen in 2021.<\/p>\n<p><a href=\"https:\/\/www.homelight.com\/agents\/rudy-dudon-fl-03099658\">Rudy Dudon<\/a>, an agent based in <a href=\"https:\/\/www.homelight.com\/siesta-key-fl\/top-real-estate-agents\">Siesta Key, Florida<\/a>, has a unique perspective on how fair-market value does (or doesn\u2019t) work.<\/p>\n<p>Siesta Key is a barrier island and holiday home haven just off the coast of Sarasota. This market is unlike most in that the majority of Dudon\u2019s buyers are not first-timers or young families; they\u2019re established folks seeking a second home for investment purposes, or they\u2019re looking for a comfortable place to retire.<\/p>\n<p>Often, these buyers are from out-of-state and, according to Dudon, it\u2019s essential that an agent properly advise a buyer on local market value.<\/p>\n<p>\u201cWhat we need to educate buyers on is, what does $500,000 get you? What does $1,000,000 get you?\u201d Dudon explains.\u201cJust because a million dollars might get them a home in Indianapolis that\u2019s one of the largest homes in the city, it\u2019s not going to be the same down here.\u201d<\/p>\n<p>This is where a market analysis is particularly helpful. \u201cThe best way to determine the market value is to look at past sales, showing the customer what properties have sold for so they understand what their price point gets them. That\u2019s the best way to start the process,\u201d says Dudon.<\/p>\n<p>Beatty echoes Dudon\u2019s sentiments on the importance of working with an <a href=\"https:\/\/www.homelight.com\/buying\">experienced local agent<\/a>.<\/p>\n<p>\u201cWhen we represent buyers, our responsibility as agents is to determine what we believe a property is worth,\u201d he says. \u201cWe ask, \u2018What is market value?\u2019 and then the conversation shifts to, \u2018How much are <i>you<\/i> willing to pay?\u2019<\/p>\n<p>\u201cThe emotional side of real estate sometimes gets people into trouble.\u201d<\/p>\n<figure id=\"attachment_13500\" aria-describedby=\"caption-attachment-13500\" style=\"width: 700px\" class=\"wp-caption alignnone\"><a href=\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-houses-1.png\" target=\"_blank\"><img decoding=\"async\" width=\"666\" height=\"381\" src=\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-houses-1-666x381.png\" class=\"attachment-content size-content\" alt=\"A house that has a fair market value.\" srcset=\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-houses-1-666x381.png 666w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-houses-1-64x37.png 64w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-houses-1-128x73.png 128w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-houses-1-192x110.png 192w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-houses-1-432x247.png 432w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-houses-1-500x286.png 500w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-houses-1.png 700w\" sizes=\"(max-width: 666px) 100vw, 666px\" \/><\/a><figcaption id=\"caption-attachment-13500\" class=\"wp-caption-text\">Source: (Matthis Volquardsen\/ Pexels)<\/figcaption><\/figure>\n<h2>The \u2018need\u2019 factor<\/h2>\n<p>Speaking of which, there\u2019s another all-important factor when it comes to home pricing. There\u2019s also the emotional side of things; the \u201cI want\u201d or \u201cI need\u201d components of searching for a home.<\/p>\n<p>A buyer who happens upon his childhood home for sale is likely going to feel the tug of sentiment, while someone who insists on a waterfront view in a specific neighborhood, or is very particular about having a three-car garage or a <a href=\"https:\/\/www.homelight.com\/blog\/how-much-value-does-a-finished-basement-add\/\">finished basement<\/a>, may be willing to pay a premium for a house with those desired features.<\/p>\n<p>Dudon notes that historical or architecturally significant homes tend to turn up the \u201cneed\u201d factor, too.<\/p>\n<p>\u201cSarasota has a high following of <a href=\"https:\/\/www.housebeautiful.com\/design-inspiration\/a22877276\/mid-century-modern-design-explained\/\">mid-century modern<\/a> homes,\u201d he says, \u201cso depending on who built the home, who designed the home \u2014 people will pay additional just because of the name behind it.\u201d<\/p>\n<p>Other scenarios that may entice a buyer to pay more include:<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li aria-level=\"1\"><b>A true home office.<\/b> Anyone can turn a spare bedroom or an unused formal dining space into a comfortable place to work, but if a house has an <a href=\"https:\/\/www.homelight.com\/blog\/building-a-home-office\/\"><i>actual<\/i> office<\/a>, and you\u2019re someone who works from home on a regular basis? You\u2019re probably going to be tempted by those French doors, built-in bookshelves, strategically located electrical outlets, and caster-wheel-friendly flooring.<\/li>\n<\/ul>\n<ul>\n<li aria-level=\"1\"><b>Luxurious amenities. <\/b>It may be true that not everyone sees an in-ground pool as a benefit \u2014 but lots of people do! The same goes for features like a wraparound porch, <a href=\"https:\/\/www.homelight.com\/blog\/basement-design-ideas\/\">finished basement<\/a>, lush landscaping, or a <a href=\"https:\/\/www.homelight.com\/blog\/upgrades-that-increase-home-value\/\">wet bar<\/a>.<\/li>\n<\/ul>\n<ul>\n<li aria-level=\"1\"><b>Move-in readiness. <\/b>A move-in ready home is just that \u2014 as soon as it\u2019s yours, you can start <a href=\"https:\/\/www.homelight.com\/blog\/buyer-moving-advice\/\">moving in<\/a>. With a fixer-upper, on the other hand, you may need to make repairs or updates to the home before it\u2019s comfortably livable. Projects can be fun, but they can also be costly and take longer than expected.<\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type: none;\"><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Whether you \u201cneed\u201d any of these desirable qualities or not is something <\/span><a href=\"https:\/\/www.homelight.com\/blog\/buyer-what-house-can-i-afford\/\"><span style=\"font-weight: 400;\">only you can determine<\/span><\/a><span style=\"font-weight: 400;\">, but do be mindful of the difference between must-haves and nice-to-haves as you\u2019re searching for your next home.\u00a0<\/span><\/p>\n<h2>Can high demand bring about a new fair-market value?<\/h2>\n<p>It stands to reason that if enough people are willing to pay a premium for a historical home with a sea view, the shifted market value actually becomes the <i>new<\/i> fair-market value \u2014 right?<\/p>\n<p>Maybe not.<\/p>\n<p>\u201cYou\u2019re going to have people who will overpay, or pay what they want to pay, because they have the ability. That will help increase the value across the board, but it\u2019s not dollar for dollar,\u201d Dudon says. \u201cJust because someone got $1,500 a square foot for a home, that doesn\u2019t mean everybody\u2019s going to get $1,500 a square foot for theirs.\u201d<\/p>\n<p>If scarcity is a factor \u2014 such as in the case of a historic or architecturally significant home \u2014 then fair-market value may not be an adequate measure of what the home is truly worth. The rarity and special attributes of this one specific property have inclined interested buyers to pay more \u2014 but that doesn\u2019t mean the same is true across the board for properties that are comparable in size and location. (Remember that for market value to come into play, there needs to be an actual market in which to act.)<\/p>\n<figure id=\"attachment_28676\" aria-describedby=\"caption-attachment-28676\" style=\"width: 700px\" class=\"wp-caption alignnone\"><a href=\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-1-1.png\" target=\"_blank\"><img decoding=\"async\" width=\"666\" height=\"381\" src=\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-1-1-666x381.png\" class=\"attachment-content size-content\" alt=\"A person researching fair market value.\" srcset=\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-1-1-666x381.png 666w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-1-1-64x37.png 64w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-1-1-128x73.png 128w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-1-1-192x110.png 192w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-1-1-432x247.png 432w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-1-1-500x286.png 500w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-1-1.png 700w\" sizes=\"(max-width: 666px) 100vw, 666px\" \/><\/a><figcaption id=\"caption-attachment-28676\" class=\"wp-caption-text\">Source: (Flipsnack \/ Unsplash)<\/figcaption><\/figure>\n<h2>What are the challenges of assessing a current fair-market value in real estate?<\/h2>\n<p>Because there are so many variables with every home and every buyer, there\u2019s no avoiding the complications of trying to determine fair-market value. But even beyond wants versus needs, emotional attachments, and disparate financial means, the parameters of what defines fair-market value present their own challenges for assessment.<\/p>\n<h3>Pocket listings<\/h3>\n<p>A <a href=\"https:\/\/www.homelight.com\/blog\/what-is-pocket-listing\/\">pocket listing<\/a> is when a real estate agent is working with a seller who has a house that is technically for sale, but it\u2019s not listed on the open market. Other agents won\u2019t find pocket listings on the MLS, there won\u2019t be a \u201cfor sale\u201d sign in the yard, and you definitely won\u2019t find it by Googling homes for sale in your city.<\/p>\n<p>If a house isn\u2019t on the market, it can\u2019t factor into comparative analysis, nor will it even be an option to most buyers because they simply won\u2019t know that the home is available in the first place. And that might make it more difficult to pinpoint the fair-market value of a similar home.<\/p>\n<h3>Defining \u2018reasonable knowledge\u2019<\/h3>\n<p>Because the definition of fair-market value includes all parties having reasonable knowledge of the asset \u2014 see also: the house \u2014 we have to understand what constitutes \u201creasonable knowledge\u201d in the first place.<\/p>\n<p>By default, you as the buyer won\u2019t know as much about a property as the seller does. As a responsible buyer, of course you\u2019ll have a thorough <a href=\"https:\/\/www.homelight.com\/blog\/how-home-inspection-works\/\">home inspection completed<\/a>, but even with this report in hand, sometimes you just can\u2019t know what you don\u2019t know.<\/p>\n<h3>Understanding undue pressure<\/h3>\n<p>In this context, undue pressure is most likely to mean either that the seller is in a financial position where they need to sell as quickly as possible \u2014 such as in a <a href=\"https:\/\/www.homelight.com\/blog\/buyer-how-to-buy-a-preforeclosure\/\">pre-foreclosure<\/a> or <a href=\"https:\/\/www.homelight.com\/blog\/short-sale\/\">short sale<\/a> situation, for example \u2014 or the buyer is in a rush to find somewhere to live.<\/p>\n<p>Maybe a rental contract is about to expire, maybe their current home is under contract, or something else is going on to where it\u2019s essential for the buyer to make a move quickly.<\/p>\n<p>Time is often of the essence in a real estate transaction, yes, but ideally neither party is on such a tight deadline that any delay or mishap would be cause for alarm. When one party <i>is<\/i> on such a deadline, it can skew the pricing of the home beyond fair-market value range.<\/p>\n<h3>Acting in one\u2019s own best interests<\/h3>\n<p>Few sellers are willing (or able) to cater to a buyer\u2019s every demand, and vice versa \u2014 but that doesn\u2019t mean every buyer or seller always acts in their best interests, at least <i>financially speaking<\/i>.<\/p>\n<p>Maybe a first-time buyer is dealing with excessive input from parents and is ready to sign <i>anything<\/i> just to get the homebuying process over with, or maybe a seller decides to take an early lowball offer because they\u2019d rather finish the task today than ensure they\u2019re fetching the top price for the property.<\/p>\n<p>Now, if you ask that buyer or that seller, they might tell you that a speedier transaction is exactly what\u2019s in their best interest, but that need for speed will probably land them outside fair-market value.<\/p>\n<p>Sometimes it\u2019s best to step back, take a breath, and make sure that what you\u2019re pursuing is actually the right decision.<\/p>\n<h3>Defining \u2018reasonable amount of time\u2019<\/h3>\n<p>One person\u2019s idea of a reasonable amount of time in which to sell their home might be 45 days, while an uneasy buyer may have 90 days in mind.<\/p>\n<p>Your real estate agent can help you determine the norm for your market, but these details are usually smoothed out in negotiations. A <a href=\"https:\/\/www.homelight.com\/blog\/what-is-a-purchase-agreement\/\">purchase agreement<\/a> can only go back and forth with negotiations so many times before one party has had enough and backs out, and once a contract is fully signed, there\u2019s a specified period of <a href=\"https:\/\/www.homelight.com\/blog\/buyer-due-diligence-real-estate\/\">due diligence<\/a> in which inspections must be completed and financing must be secured.<\/p>\n<figure id=\"attachment_13501\" aria-describedby=\"caption-attachment-13501\" style=\"width: 700px\" class=\"wp-caption alignnone\"><a href=\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-dice.png\" target=\"_blank\"><img decoding=\"async\" width=\"666\" height=\"381\" src=\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-dice-666x381.png\" class=\"attachment-content size-content\" alt=\"Dice used to represent houses with fair market values.\" srcset=\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-dice-666x381.png 666w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-dice-64x37.png 64w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-dice-128x73.png 128w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-dice-192x110.png 192w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-dice-432x247.png 432w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-dice-500x286.png 500w, https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-dice.png 700w\" sizes=\"(max-width: 666px) 100vw, 666px\" \/><\/a><figcaption id=\"caption-attachment-13501\" class=\"wp-caption-text\">Source: (Erik Mclean\/ Unsplash)<\/figcaption><\/figure>\n<h2>Let\u2019s play: Is this a fair-market value scenario?<\/h2>\n<p>To really drive home the essence of fair-market value in a real estate transaction, let\u2019s examine a few different situations:<\/p>\n<h3>Scenario #1: An adult child purchases a home from a parent<\/h3>\n<p>This is most definitely <i>not <\/i>a fair-market value scenario, nor even a market-value scenario. There are exceptions, yes, but in most cases, a parent is not going to charge their own child the full <a href=\"https:\/\/www.homelight.com\/home-value-estimator\">market value<\/a> of a property.<\/p>\n<p>The discount may not be as deep, but the same \u201chey, we\u2019re family!\u201d favors tend to apply when purchasing from a grandparent, aunt, uncle, cousin, and so on. Plus, in a family transaction like this, the home is unlikely to even go on the open market.<\/p>\n<h3>Scenario #2: A buyer purchases his or her childhood home from the current owners<\/h3>\n<p>Now, there may not be a personal relationship between buyer and seller in this scenario, but there is something special about this particular home. Emotions are already running high when it\u2019s time to buy a house, so imagine what it\u2019s like when the home in question is one with deep nostalgic value to the buyer. One of two things are likely to happen:<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">The emotionally attached buyer is willing to pay whatever it takes to ensure the house isn\u2019t sold to someone else.<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">The seller will be charmed by the tale and generous with their negotiation, whether with the list price, covering <a href=\"https:\/\/www.homelight.com\/blog\/what-are-closing-costs-for-seller\/\">closing costs<\/a>, or any extras that might be included in the sale.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>Either way? We\u2019re <i>not<\/i> dealing with fair-market value (or market value) in this case.<\/p>\n<h3>Scenario #3: A buyer purchases an investment home from his or her boss at work<\/h3>\n<p>At this point, you shouldn\u2019t be surprised to learn that this is likely <i>not<\/i> a fair-market value situation.<\/p>\n<p>Although a buyer\u2019s boss isn\u2019t likely to cut as sweet a deal as their own mother, it\u2019s still quite likely that favorable terms will be offered.<\/p>\n<p>Perhaps the boss has priced the property low enough to entice the employee into taking action as a buyer, or perhaps the buyer is helping to ease the stress of selling by purchasing the home before the boss even has to formally list the house on the market.<\/p>\n<p>Depending on the employee-boss relationship, the buyer may also have further information about the history of the house and its repairs or <a href=\"https:\/\/www.homelight.com\/blog\/which-renovations-increase-home-value\/\">renovation process<\/a> that wouldn\u2019t be as readily apparent to outside perusers of the market.<\/p>\n<h3>Scenario #4: A buyer with a very specific hobby or interest purchases a home already outfitted for that hobby\/interest<\/h3>\n<p>So, this one can be tricky.<\/p>\n<p>As discussed earlier, people are often willing to pay for what they really want. A car collector who enjoys wrenching on the weekends may very well be happy to fork over additional funds to buy a house that has ample garage space with a built-in workbench and tool rack, while a burgeoning homebrewer may light up over discovering a home for sale with a finished basement complete with custom bar and beer taps.<\/p>\n<p>Though the buyer and seller may indeed be strangers pursuing their own best interests, what skews the fair-market value in a case like this is the buyer\u2019s increased interest in <i>this<\/i> specific home.<\/p>\n<p>The stakes are higher; we\u2019re no longer dealing with a matter of simply finding another four-bed, two-bath home with a yard. Someone who sees a home as perfect for their hobby is no longer representative of an average\/reasonable buyer, and thus this is <i>not<\/i> a fair-market value scenario.<\/p>\n<h3>Scenario #5: A buyer and seller who don\u2019t know each other are connected by a real estate agent before the home hits the market, and they\u2019re able to negotiate a deal<\/h3>\n<p>This may be the most difficult scenario yet. On the one hand, we have a buyer and a seller who have no prior relationship, and we can even go ahead and assume that there is no compelling emotional nor recreational pull to this particular house \u2014 seems like fair game, right?<\/p>\n<p>Except, it\u2019s not, because the house never had the chance to go to market. Sure, a good agent will have performed their due diligence and examined comparable sales to have a starting price point in mind, but by connecting a seller with a potential buyer before listing the property, there\u2019s no way to know what someone else may have offered or how long the house would have sat on the market.<\/p>\n<p>This is <i>not <\/i>an example of fair-market value (or market value) because a connection was facilitated between buyer and seller that would not have happened otherwise.<\/p>\n<h2>Only you, the buyer, can decide what you&#8217;re willing to pay<\/h2>\n<p>Risks of voluntarily overpaying may include having to put down a larger amount of money to avoid <a href=\"https:\/\/www.homelight.com\/blog\/what-to-expect-from-a-home-appraisal\/\">appraisal<\/a> issues when it\u2019s time to secure the mortgage, and you may not see as great a profit \u2014 and in some cases, perhaps not even a full return \u2014 on your investment if you later decide to sell. For many buyers, the right home is worth the price.<\/p>\n<p>The best way to buy smart is to have a great real estate agent on your side through the whole process, and a <a href=\"https:\/\/www.homelight.com\/find-real-estate-agents\">top local agent<\/a> will be well-qualified to advise you on fair-market value and beyond. Happy house hunting!<\/p>\n<p><em>Header Image Source: (Binyamin Mellish\/ Pexels)<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>How do buyers know when their hopeful home is fairly priced according to market value? We explain what fair market value means and why it matters.<\/p>\n","protected":false},"author":152,"featured_media":13496,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"cybocfi_hide_featured_image":"","footnotes":""},"categories":[192,629,633],"tags":[],"class_list":["post-13420","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-for-buyers","category-home-financing","category-property-values"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.0 (Yoast SEO v27.0) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>What Is Fair Market Value? A Home Price Free From Bias<\/title>\n<meta name=\"description\" content=\"How do buyers know when their hopeful home is fairly priced according to market value? We explain what fair market value means and why it matters.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"All\u2019s Fair in Love and \u2026 Market Value? What is Fair Market Value Means in Real Estate\" \/>\n<meta property=\"og:description\" content=\"How do buyers know when their hopeful home is fairly priced according to market value? We explain what fair market value means and why it matters.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/\" \/>\n<meta property=\"og:site_name\" content=\"HomeLight Blog\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/gohomelight\/\" \/>\n<meta property=\"article:published_time\" content=\"2019-12-30T21:23:12+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-05-29T20:17:33+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/hl-blog.homelight.com\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-1.png\" \/>\n\t<meta property=\"og:image:width\" content=\"1500\" \/>\n\t<meta property=\"og:image:height\" content=\"800\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Summer Rylander\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@summeroutside\" \/>\n<meta name=\"twitter:site\" content=\"@gohomelight\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Summer Rylander\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"16 minutes\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"What Is Fair Market Value? A Home Price Free From Bias","description":"How do buyers know when their hopeful home is fairly priced according to market value? We explain what fair market value means and why it matters.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/","og_locale":"en_US","og_type":"article","og_title":"All\u2019s Fair in Love and \u2026 Market Value? What is Fair Market Value Means in Real Estate","og_description":"How do buyers know when their hopeful home is fairly priced according to market value? We explain what fair market value means and why it matters.","og_url":"https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/","og_site_name":"HomeLight Blog","article_publisher":"https:\/\/www.facebook.com\/gohomelight\/","article_published_time":"2019-12-30T21:23:12+00:00","article_modified_time":"2024-05-29T20:17:33+00:00","og_image":[{"width":1500,"height":800,"url":"https:\/\/hl-blog.homelight.com\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-1.png","type":"image\/png"}],"author":"Summer Rylander","twitter_card":"summary_large_image","twitter_creator":"@summeroutside","twitter_site":"@gohomelight","twitter_misc":{"Written by":"Summer Rylander","Est. reading time":"16 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":["Article","BlogPosting"],"@id":"https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/#article","isPartOf":{"@id":"https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/"},"author":{"name":"Summer Rylander","@id":"https:\/\/www.homelight.com\/blog\/#\/schema\/person\/6ebd35a60a53fe2e4052a638133684df"},"headline":"All\u2019s Fair in Love and \u2026 Market Value? What is Fair Market Value Means in Real Estate","datePublished":"2019-12-30T21:23:12+00:00","dateModified":"2024-05-29T20:17:33+00:00","mainEntityOfPage":{"@id":"https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/"},"wordCount":3502,"publisher":{"@id":"https:\/\/www.homelight.com\/blog\/#organization"},"image":{"@id":"https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/#primaryimage"},"thumbnailUrl":"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-1.png","articleSection":["Buyers","Financing","Making Sense of Property Values"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/","url":"https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/","name":"What Is Fair Market Value? A Home Price Free From Bias","isPartOf":{"@id":"https:\/\/www.homelight.com\/blog\/#website"},"primaryImageOfPage":{"@id":"https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/#primaryimage"},"image":{"@id":"https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/#primaryimage"},"thumbnailUrl":"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-1.png","datePublished":"2019-12-30T21:23:12+00:00","dateModified":"2024-05-29T20:17:33+00:00","description":"How do buyers know when their hopeful home is fairly priced according to market value? We explain what fair market value means and why it matters.","breadcrumb":{"@id":"https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/#primaryimage","url":"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-1.png","contentUrl":"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/12\/what-is-fair-market-value-1.png","width":1500,"height":800,"caption":"Source: (Binyamin Mellish\/ Pexels)"},{"@type":"BreadcrumbList","@id":"https:\/\/www.homelight.com\/blog\/buyer-what-is-fair-market-value\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/www.homelight.com\/blog\/"},{"@type":"ListItem","position":2,"name":"All\u2019s Fair in Love and \u2026 Market Value? What is Fair Market Value Means in Real Estate"}]},{"@type":"WebSite","@id":"https:\/\/www.homelight.com\/blog\/#website","url":"https:\/\/www.homelight.com\/blog\/","name":"HomeLight Blog","description":"Real Estate Advice from America&#039;s Top Agents","publisher":{"@id":"https:\/\/www.homelight.com\/blog\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.homelight.com\/blog\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/www.homelight.com\/blog\/#organization","name":"HomeLight","url":"https:\/\/www.homelight.com\/blog\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.homelight.com\/blog\/#\/schema\/logo\/image\/","url":"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2017\/11\/logo-hr-color.png","contentUrl":"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2017\/11\/logo-hr-color.png","width":1348,"height":262,"caption":"HomeLight"},"image":{"@id":"https:\/\/www.homelight.com\/blog\/#\/schema\/logo\/image\/"},"sameAs":["https:\/\/www.facebook.com\/gohomelight\/","https:\/\/x.com\/gohomelight","https:\/\/www.linkedin.com\/company\/homelight\/","https:\/\/www.youtube.com\/channel\/UCimugR9XF17-OZ7B9fNnxWw","https:\/\/en.wikipedia.org\/wiki\/HomeLight"],"description":"Everything you need to know to sell your house faster and for more money. Articles, guides, and advice from top agents all over the U.S.","email":"support@homelight.com","telephone":"(888) 688-0350","legalName":"HomeLight","foundingDate":"2012-01-01","numberOfEmployees":{"@type":"QuantitativeValue","minValue":"201","maxValue":"500"}},{"@type":"Person","@id":"https:\/\/www.homelight.com\/blog\/#\/schema\/person\/6ebd35a60a53fe2e4052a638133684df","name":"Summer Rylander","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.homelight.com\/blog\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/971c25778b11c8fc464050c4f0e45fa2ca9f67fe1d14d0b02e63f88b23dfbce8?s=96&d=blank&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/971c25778b11c8fc464050c4f0e45fa2ca9f67fe1d14d0b02e63f88b23dfbce8?s=96&d=blank&r=g","caption":"Summer Rylander"},"description":"Summer Rylander is a freelance writer and editor with an abundant background in real estate. A former residential real estate agent in the Columbia, SC area and sales administrator at a commercial real estate firm, she now uses this experience to help guide readers. Summer currently resides in Nuremberg, Germany, where she fulfills her passions of food and travel and avoids her dislikes of mayonnaise and being trapped in an office.","sameAs":["https:\/\/www.linkedin.com\/in\/summerrylander\/","https:\/\/x.com\/summeroutside"],"url":"https:\/\/www.homelight.com\/blog\/author\/summer-rylander\/"}]}},"_links":{"self":[{"href":"https:\/\/www.homelight.com\/blog\/wp-json\/wp\/v2\/posts\/13420","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.homelight.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.homelight.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.homelight.com\/blog\/wp-json\/wp\/v2\/users\/152"}],"replies":[{"embeddable":true,"href":"https:\/\/www.homelight.com\/blog\/wp-json\/wp\/v2\/comments?post=13420"}],"version-history":[{"count":0,"href":"https:\/\/www.homelight.com\/blog\/wp-json\/wp\/v2\/posts\/13420\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.homelight.com\/blog\/wp-json\/wp\/v2\/media\/13496"}],"wp:attachment":[{"href":"https:\/\/www.homelight.com\/blog\/wp-json\/wp\/v2\/media?parent=13420"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.homelight.com\/blog\/wp-json\/wp\/v2\/categories?post=13420"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.homelight.com\/blog\/wp-json\/wp\/v2\/tags?post=13420"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}