For-sale signs keep going up and down in your neighborhood, and maybe the over-the-fence gossip has you curious about what’s happening to prices in your neighborhood. After all, home prices have soared by double digits in markets all across the country, and your home could be worth more than you think.

Figuring out fair market values involves several factors and is the first step realtors take in determining listing prices. Let’s take a look at what it is and why it matters.

What is Fair Market Value?

As the name suggests, fair market value is what the market of homebuyers decides your house is worth. It’s the final price someone pays for your house, which can fluctuate based on supply and demand.

While it’s good to keep tabs on what your neighbors might list their houses for, sold properties and not list prices are your best starting point to value your home. They show what the market will bear in reality when selling a house.

Calculating FMV

A real estate agent runs a comparative market analysis to help determine your home’s value. This considers everything that can impact that amount, including tax history, recent nearby sales, school district, and more. More specifically, they’re looking at the following:

• Comparable sales
• Supply and demand
• Location
• External traits like lot size and home style
• Internal traits like square footage and construction
• Overall condition of house and property

All of these are taken into consideration when figuring a fair asking price, which is just a starting point for buyers and the seller to negotiate from to get to the true market value.

Many times, the fair value is figured as a price per square foot, which accounts for different home sizes in a neighborhood.

Why Fair Market Values Matter

All of this might seem like a bit of a theoretical exercise if you aren’t planning to sell your house anytime soon, but the market value for your neighborhood and house impacts more than a potential sale price.

Property taxes are based on assessed value, which isn’t the same as fair market but is still related. In many districts, your taxed value is defined as a percent of the local market values. When those go up, so does the amount you have to pay taxes on.

What the current market value is comes into play with financing as well since the bank considers it when you get a loan or refinance. Insurance companies also incorporate it into policy quotes and rates.

Improve Your Home’s Value

When determining fair market value, it’s important to make sure you’re considering comparable properties in your area and looking at sale prices rather than listing prices. A formal appraisal or home inspection can identify things that might drag your value down when you want to sell so you can up your value.

Now that you understand fair market values, check out other articles on the site for tips on improving your home’s value and how to get top dollar when you sell a home.