Real Estate Word of the Day: Fair Market Value
Fair market value (FMV) is the estimated price at which a property would change hands between a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts and neither being under any compulsion to buy or sell. It represents an accurate and objective valuation of a property under normal market conditions.
Key Factors Influencing Fair Market Value
- The location of a property significantly affects its value. Properties in desirable neighborhoods with good schools, low crime rates, and proximity to amenities such as shopping centers, parks, and public transportation tend to have higher market values.
- The condition of the property is another critical factor. Well-maintained homes with modern updates, efficient systems, and attractive designs are valued higher than properties needing significant repairs or renovations.
- The broader real estate market conditions also play a crucial role. In a seller's market, where demand exceeds supply, property values tend to rise. Conversely, in a buyer's market, where supply exceeds demand, values may decline.
- Comparable sales, or "comps," refer to recently sold properties similar in size, location, and condition. Analyzing comps helps in estimating a property's fair market value by providing a benchmark based on actual market activity.
- Interest rates, employment rates, and overall economic health can impact property values. For instance, lower interest rates generally make borrowing cheaper, increasing demand for real estate and driving up prices.
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