Profile picture for prepping

How do you figure out the fair market value of a house?

How do you figure out the fair market value of a house?  Definitely, it will vary from location to location.  I am curious about the math that goes behind the process!

My subject is in Williamson/Travis County, Austin, TX.  Is the approach below logical?  Will it work?
 I go to the appraisal site first
 The value of the house will be equal to 80% of the market price
 Then we bring it down from there

A real life example:
 2008 Appraised value $223,500, for a 3-bed/2.5-bath/2-car-garrage 2,300 sq-ft two storied, built in November 2004 by D.R. Horton.  Sold 03/02/2005: $189,500

What should be the estimated fair market price of this house in Avery Ranch?
  • April 22 2009 - North Austin
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Answers (16)

Profile picture for Bev Meaux

The fair market price is the value a buyer will pay for a house in an arms length transaction; a transaction where the seller is not in peril.

Why would the the house value be equal to 80% of the market price?

You can do various appraisal calculations but they are just that, appraisals.

Find out what similar homes have sold in the past 30 days, what has gone under contract in the past 30 days. Similar homes should be homes with the same specs and those in the same neighborhood; the latter to give a sense of what's happening in that neighborhood.

Next, have your agent call the other agents who have those houses under contract and get a sense of where the offer lies as compared to the asking price. This will give you a more up-to-the-minute search of where the house prices stand for you.

Take that information and compare to what you've seen on the market and your reaction to those list prices. All of this should give you a sense of what price is good.

I arm my buyers with details and after a few houses, they know exactly what they think a house should be worth. And that's all that counts. What you are willing to pay for the house. Then it's up to the seller to decide if what you're willing to pay is what they are willing to sell for. If it is, it's a deal. If it isn't, you move on to the next one. There's always a next one.

Enjoy your homebuying experience.

  • April 22 2009
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Profile picture for nwhome.us
The value of a home is arrived at individually by a buyer and a seller when they agree upon a price and, incidentally, when they are able to close the sale at that price.  There are many situations where the sale price is not the listed price and is not the offered price. "Arms length" means that there are no other influencing factors like family ties, distressed sellers or bank ownership etc.
The best way to determine if a home is the right price for you, the buyer, is to educate yourself in the neighborhood where you would like to live.  Gathering information from friends and family and the internet is a good start but we will all have different (and sometimes confusing) opinions of what is right.  Websites like your county tax site or Zillow have to be interpreted by someone who uses those sites all of the time.  Assessor values are far more complicated than being 20% below "market value."  Zestimates rely on county data and owner input, both of which are just not accurate for YOU!
The Meauxs say "I (we) arm my buyers with details and after a few houses, they know exactly what they think a house should be worth. And that's all that counts".  They are demonstrating that they believe that educating their buyers is the key to establishing value.  I find that not everyone can learn value in a few homes and that it may take months to learn what yours is.  I've had clients rent in a neighborhood for a few months and visit every open house while they are there.  Pretty soon they discover that this neighborhood is affordable or not; that a 2 bedroom usually sells for X and a 3 bedroom sells for Y.  You learn how people take care of their homes and how they upgrade them.  What does it do to the value if there is a new bedroom, kitchen, bath or deck? 
You learn what is valuable to you. "And that's all that counts."  I agree with this.  It doesn't matter what we think.
I'll use the term Realtor, which refers to a person who belongs to the National Association of Realtors.  Their website is realtor.org.  You can find some great questions to ask your agent there.
Realtors use all of this information to estimate the market value of a home because we are immersed in it all day and every day.  We use this information to advocate for your opinion of value.  We are supportive of your learning curve and can provide as much time and information as it takes for you to understand what you value in a home.
  • May 16 2009
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Ask your agent to pull up what has sold within the last thirty to forty five days that is similar to the home you are making an offer on or are considering listing.  Another option is to pay an appraiser who will provide you with an appraisal of the property.  Are you buying or selling?
  • May 16 2009
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I am assuming you want to know how much to list your home and approximately how what it will sell for. Being a Real Estate Agent who is a member of to the Austin Multiple Listing Service I will pull up information about homes in the same or like neighborhood that are plus or minus 200 square feet of the subject home. Looking at homes that are active, active contingent and sold within the last 90 days. Making adjustments for features and condition of the homes. Typically we want 3 active and 3 sold homes to base our value on. This will also give the homeowner a good picture of what the market is doing and what to expect. 
  • June 12 2009
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Profile picture for dacolan
It's misleading at best to base "fair market value" on nothing but comps in a declining market. An honest Comparative Market Analysis is not complete unless the analysis includes where the market is headed and likely to be in a year.
  • June 12 2009
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The question was "How do you figure out the fair market value of a house?"
Fair Market Value = Price that probably would be negotiated between a willing seller and willing buyer in a reasonable time. Usually arrived at by comparable sales in the area.
From: Financial Real Estate Handbook Fifth Edition. Definition written by John Talamo Attorney in Southern California, who has a law degree from Detroit College of Law at Michigan State University
  • June 12 2009
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Profile picture for dacolan
That may be the dictionary definition of "fair market value" in the context of "normal" market conditions, but I'd wager that author/RE attorney is wise enough to understand that nothing happens in a vacuum.

An arm's length transaction doesn't generally include distressed sales in a stable market, but what if over half the sales in a given area are distressed properties? Then distressed sales are no longer the exception. They are the market.

It is misleading and a dis-service for any RE pro to talk about "fair market value" without taking into consideration current market conditions.
  • June 12 2009
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That is why a professional real estate agent will know the market they work in. Enough Said!
  • June 12 2009
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Profile picture for dacolan
To my original point; A quality REA will not only advise their client about the current market based on comps, but will inform them as to the direction the market has been heading, is heading and where it is likely to be in a year.
  • June 12 2009
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So do you have a crystal ball that can tell the future HOTSHOT. How do you know the true future market value? How can you tell if a major employer is going to go belly up? Or some other unforseeable event will happen in the future? Tell us how you are going to do this I would really like to know.
  • June 12 2009
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Profile picture for sunnyview
Sure no one knows the direction of the market like a fact in a book. I think you can make reasoned assumptions based on employment opportunity, cost of living relative to wages, availability of housing, historical cost of housing etc. though. Although professional appraisals do include a notation on whether the local market is rising, declining or stable when the appraisal is done, I have not seen that done myself in CMA's. I have met agents that are not able to even consider the possibility that their market might drop and others who are quite tuned in to the daily changes in their local market up or down. Saying that you can predict with certainty a local market bottom is as silly as saying you can't make any kind of useful prediction based on the facts available. When I look for an agent, I want them to have a solid understanding of the market as a whole warts and all. I'm not a hardened investor, but even as a regular buyer I can handle the truth and hopefully I can make better decisions with it. 
  • June 12 2009
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Profile picture for Mr. Bubble
Distressed property (Desperate sellers) and bank owned property are arms length transactions. Prices are lower to either supply liquidity to the seller or to compensate the buyer for the lack of required disclosure.

If you can get them, recent sales will tell you the direction of market and how fast it is rising/falling. You can assume some price momentum. If you think it looks like a falling knife, make a low offer. If prices are rising, make a high offer.
  • April 01 2010
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It doesnt matter what it was apprised for 2 yrs ago or how much it was sold for last year...All that matter is the current as of today comperables which would be how much did the last couple of homes that were comperable to your home sold for and what on the market today..If you want an accurate price I would contact a REALTOR.

  • April 01 2010
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Profile picture for Mr. Bubble
Attention realtors: when every answer is "You need a realtor, you can't trust Zillow" that sounds self serving to us, your potential clients. We see right through it. The world of real estate is changing and buyers and sellers are empowered with more information than in the past. Adapt or perish. Be helpful and honest. Zillow is a self-service tool. Demonstrate your knowledge yes, but don't decry Zillow. It's amazing to us.

Think of the securities market. Stock brokers became advisors with the rise of the internet and discount brokerages like TDAmeritrade. More information for investors actually increased the need for financial advice because people need help understanding it. But, the nature of the advice changed.
  • April 01 2010
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The market value of a home is determined by what somebody will pay for that home.  To determine this you need to look at what current similar homes are listed for and what has sold recently.  Using the Tax Appraisal value is a good place to start but will not give you a good determination of value to base a sale or purchase on.  Some areas of Austin come in above the tax appraisal and some come in at or well below the tax appraisal.

If you would like to receive a free market report showing homes currently listed for sale in Avery Ranch or anywhere in the Austin MLS you can go here for a free report.  This report will list homes currently listed for sale and those that have recently sold.  The information comes directly from the Austin MLS so the data is accurate and up to date.  From there you can look and see what your home may be worth based on the current recent sales and listed homes in your neighborhood.  This is the same information that I use when determining the listing price of a home for my clients.

Because I am also a mortgage broker I try to steer my clients away from using the builder financing.  This is because everything is controlled by them and you can easily pay more than the home is worth.  When you use a third party such as a lender or broker  you will not run into this problem.  Builders want you to use their lenders because it is a profit for them but it also ensures that there will be no valuation problems when the loan is submitted to the lender of their choice.  So always be aware of this when purchasing a builder home because it can put a lot of people into a negative equity position from day one.

  • April 02 2010
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Profile picture for dacolan
The market value of a home is determined by what somebody will pay for that home.

The price a house sells for is the value that particular buyer places on the house. The true market value is the price the local job market and wages/incomes support. True market value also has a direct relationship with the local rental market.

If your purchase price was based on comps in a bubble area in 2006, you overpaid. If your purchase price was based on comps even after the bubble popped in 2008, you overpaid.

Bottom line: Real market value has little to do with comps. Real market value is based on affordability. Price-to-income and price-to-rent analyses are far more meaningful than a CMA.
  • April 02 2010
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