What is a Fair Market Assessment, and How Can You Use it to Get More Value Out of Your Property
If you are selling your home, or perhaps are thinking of selling your home, your realtor will most likely conduct a Fair Market Assessment, or FMA, of your property. This is a comprehensive report of your property from an outside perspective, and accounts for the features and updates of your house. But the main point of it is to give you an analysis, given the current market conditions and neighborhood, of how much you can expect to receive from the sale of your home.
What can you expect?
If you are serious about selling your home (or are even remotely curious about the selling price) a realtor will want to walk through your home to assess its current condition. They will ask you to point out areas of your home that are newer or remodeled (within the last 5-7 years). What they're really looking for are hot selling points. If appliances stay or are included in the price, obviously, it looks better in a listing. If there is new carpeting, new doors and windows, new furnace or central A / C, then those are great points an agent can go with. Another biggie is roof. If it is a newer roof, this typically increases home value and will command a more solid selling price. A realtor can give you a better idea of what helps a home's value increase, but these are a start.
So the realtor will walk around and make notes. They may or may not ask for room measurements. The idea at this point is to gain a rough idea of the home's condition and features – something the tax record or real estate listing system can not provide.
Do not be hurt by the realtor's frank assessment of your property – it is nothing against you personally. You may feel illuminated that someone is not as excited as you walk through your home. They are professionals that are trained to look past asthetics towards selling points.
After the walkthrough, the realtor or professional will plug some numbers and features into their system, and it will return a few things to them
First, the system will look for other homes in the area that are for sale and currently available. It will look for similar features, lot size, home square footage, and proximate to your property.
Next, the system will pull up the asking price of these homes.
Third, the system will present homes that have sold in the last 12 months, and will show their selling price (what was paid for the home) as well as any features the home may have had along with square footage, etc.
The report will then lay out these properties, side by side, so features can be asily distinguished. They are separated sold houses from current unsold properties.
Your home's price will then be determined based on current asking price in the neighborhood, average home sales and features. Expect your home to be a rough average of them, possibly inched a little higher or lower depending on the features of your home.
Then, deductions are taken. Deductions are negative selling points of your house. Another way to look at them is they detract from the value of your home. For example, fuse boxes take away from the value of your home, whereas circuit breakers may actually add value. Updated electric versus old electric have the same effect. The reason for such deductions is typically insurance related. Insurance rates are higher for non breaker homes with old electrical wiring because the risk of fire is greater.
After all this, you get an idea of what your home is worth, as of that day, in the current market. This is the projected sale price.
The assessment will also give you an approximation of fees, commissions, taxes, and more that go into selling your home. This figure is based on the sale price. Usually, the largest two here are real estate contracts (which vary by area) and sales or real estate transfer taxes.
Subtract that number from the sales price, and you receive your net price. This is how much the FMA predicts, or the amount you can expect to actually receive from the sale of your home.
How do you use the assessment?
The FMA can help you and your realtor determine the asking price for your home or property. Almost always the asking price will be higher than the projected sales price. This is done to provide room for negotiation between the buyer and seller. For example, if the FMA predicts a sales price of $ 100,000, the sales price may be set at $ 110,000 or higher. This is done because almost no one walks in and bids the asking price – there is negotiation. Someone may walk in and bid $ 102,000 or even less.
You also use the FMA to determine how much you need the house to sell for to either make a profit or break even. Unless you are in a rare circumstance, you probably do not want to take a loss on the house and receive less than you owe on it. So, you use the planned sale price and your amount still owed on the house as baselines.
For example, if the FMA says that you can expect to sell the house for $ 100,000 but you still owe $ 104,000 on the house, you know that your asking price has to be set much higher than $ 104,000 initially – and you must sell the home for at least this amount (or more if you count selling costs) if you do not want to take a loss.
You can also use the assessment as a general tool to see what houses in your neighborhood are selling for, and how long they have been on the market. When listing current houses, the FMA shows the length, in days, the house has bene available. This can be an indicator that either the houses are priced too high, or the market in the area is not moving. Either way, you can adjust your asking price accordingly.
Keep in mind the FMA is not intended to be an accurate tool – it is meant to give you an idea, or estimations, about how your home would perform on the open market. That said, it is a powerful tool that you usually receive for free from a realtor. And if you decide not to sell your home, you can still keep the assessment.