The selling value of a house is whatever the buyer and seller agree is a good price. That may be the same as market value, but sometimes they're very different. If one of the parties is desperate to make a deal or doesn't know important facts, the sale price may have little in common with the fair market value.
Fair Market Value
Fair market value is the price a buyer and seller would agree on if nobody was under pressure to close, both of them were knowledgeable about the market and the transaction is "arm's length." If the owner is desperate to sell because of relocation or the buyer has no idea the house is overpriced for the neighborhood, the sale price probably isn't at market value. The same is true if the transaction isn't "arms length": If you're buying from your father rather than a complete stranger, you may get a price well below market value.
When you're selling your house, it's good to know what the fair market value is for your neck of the woods. Talk to neighbors who've sold their homes recently or drive through the neighborhood to find recent sales. Contact the agent about the price or browse real-estate ads to find out about the home. If there are significant differences from yours -- the number of bathrooms, the size of the lot -- talk to someone knowledgeable about how much of a value difference that makes.
Take the price of four or five recent sales -- after you adjust for differences from your own house -- and average them out. If the average for a comparable house on your street is $220,000, that's a good indicator of fair market value. You can also calculate value by floor space. Average the square footage for the recent sale homes, then divide that into the average price to get the average price per square foot. If you multiply that by the square footage of your house, you'll get an estimated fair market value.
With enough recent sales to give you a good idea of your local market value, you can use that value to set your an asking price. If you've discovered the most recent sales are significantly lower in price than the earlier ones, you might consider dropping your price to stay competitive in a declining market. If there are a lot of homes for sale in your neighborhood above the fair market value, setting a slightly lower asking price might give you a competitive edge.
- David Sacks/Lifesize/Getty Images
- The Advantages & Disadvantages of Large-Company Stock Funds
- Bank Money Markets Vs. Money Market Mutual Funds
- Beginner's Guide to Money Market Funds
- Description of an Unstable Financial Situation
- FDIC Vs. SIPC for Money Market Funds Protection
- Market Value Vs. Actual Cash Value
- Trade Date vs. Settlement Date for Money Market Funds