What is fair market value of a house?

If you are either buying or selling a piece of real estate, you’d want to know what is fair market value of a house. Fair market value (FMV) is crucial in real estate dealings for both sellers and buyers. Sellers use it to set competitive prices, while buyers rely on it to make reasonable offers. FMV also guides home appraisers, real estate attorneys, and home insurers. But what is fair market value of a house, and how is it calculated? Let’s find out, here. 

What is fair market value of a house?

Simply put, FMV in real estate refers to the price agreed upon by a potential home buyer and a willing seller in an open market. Remember that fair market value isn’t what a homeowner wants to sell for or what a buyer wants to pay. It’s also not necessarily the same as the appraised price or the tax value of a property. Fair market value is an approximate price that a home could sell for.

Why is calculating the fair market value of a house necessary?

Homeowners should keep track of their home’s fair market value since the asset affects their overall net worth. Knowing your home’s fair market value helps you figure out your home equity. Home equity is what you own of your home. You can calculate it by subtracting your current mortgage balance from the home’s fair market value.

Real estate agents often use fair market value to set a price for a home they’re selling or helping someone buy. They use this info to create a listing and to make comparative market analyses for clients.

Home appraisers also consider fair market value when evaluating a home for lenders or refinancing. Their home appraisal helps ensure that buyers aren’t borrowing more than the home’s worth.

Interestingly, fair market value isn’t just for real estate transactions. Attorneys, government officials, the Internal Revenue Service (IRS), and home insurance companies use it in various situations such as divorce, death, eminent domain, property taxes, and insurance claims for incidents such as floods, fires, or accidents.

What influences a home’s fair market value?

Appraisers assess a home’s current worth based on its permanent features, including:

• Size: The home’s square footage, number of bedrooms, bathrooms, and additional spaces such as a garage, sunroom, and a finished basement.
• Lot size and location: The land’s size and where the home is situated. Also, the quality of yard landscaping.
• Age and condition of the house: The state of the roof, foundation, walls, windows, doors, home appliances, and systems such as heating, cooling, electrical, and plumbing.
• Upgrades and amenities: Modernized kitchens, bathrooms, special rooms such as a home media room or home office, and luxury additions such as a swimming pool.
• Comparable sales: The recent selling prices of similar homes in the neighborhood. These real estate comparables help to gauge value.

What is the best way to calculate the fair market value of a home?

Determining the fair market value of a home isn’t as straightforward as other aspects of buying and selling real estate. Since homes are sold in an open market, their value can change due to market fluctuations, such as supply and demand. This means the value can vary based on the buyer and seller’s circumstances and their eagerness to make a deal.

To estimate the fair market value, you can consider these methods.

• Agree on a sale price: Both the buyer and seller can agree on a value by considering their knowledge of the property and current market trends.
• Use a comparable market analysis (CMA): Look at comparable home sales of similar properties in the area to gauge what your property might be worth in the current market. However, in many markets, homes sell for more than fair market value. So, relying solely on comparisons might not work well. Especially, in situations with multiple offers. Sellers sometimes set higher prices to test the market, which might not work in slower markets where inventory is higher.
• Get an appraised value: A real estate appraiser can assess the property’s value. This can be useful although it’s not always the final word on fair market value. Usually, a home appraisal costs between $300 and $400. During the appraisal, the appraiser checks both inside and outside of the home to decide its value.
• Find the price per square foot: Compare similar homes in your neighborhood by dividing their sale prices by square footage. Then, multiply that amount by the square footage of your home to get a rough estimate.
• Review the property taxes: Homeowners can access the tax assessment to understand the home’s value. This data is often available online, usually on the county tax assessor’s website. Online tax records may also provide property details such as the last sale price and square footage.

What are the different values a house can have?

The different home values could be:

• Asking price: This pricing is set with the help of your agent. It is based on comparisons with similar properties recently sold in your area. And, on factors such as age, size, and updates to a house.
• Purchase price: This is the amount agreed upon by both seller and buyer during negotiations.
• Market value: This represents what sellers believe their home is worth, but the market ultimately decides. This is distinct from FMV which specifically reflects the economic principles of a free and open market.
• Appraisal value: The value is determined by an appraiser. It influences how much a lender will loan you and assures both you and your lender of the home’s worth.
• Assessed value: Set by local tax authorities, it’s typically a percentage of your home’s market value. Your purchase price may temporarily serve as its assessed value until a jurisdiction-wide reassessment occurs. 

Last thoughts

Fair market value is the price an asset would fetch in an open market. It has to meet specific conditions: all parties should be informed, act in their self-interest, face no pressure, and have ample time to decide.

Apart from those buying or selling a home, others too frequently rely on fair market value assessments. These include tax authorities, real estate pros, and insurance companies.

Real estate agents use it to decide on a price range for selling homes. Listing agents set the asking price, while buyer’s agents use it to plan their offer strategy.

If you are looking for a home, knowing its FMV is useful. The bottom line is that it helps you in making a successful offer and ensures you’re getting a reasonable deal.

Written by Ramona Sinha. October 29, 2025

Ramona is the Senior Content Writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. She has written articles covering a broad range of topics, such as real estate, lending and mortgage, finance, business, taxation, home designs, home improvement projects, decor concepts, and more. An avid traveler, she’s a digital nomad at heart and an animal lover from the depth of her soul.