Digging Into Real Estate: How is Market Value Really Determined?

You’ve heard the term many times. Maybe you’ve heard about the market value of a property in Cape Coral on the news or from a real estate agent.

Whether you’re a homeowner or a homebuyer, you know this information is significant. The market value determines how much you’ll buy or sell something for. Keep reading to understand better what market value means and how it’s determined.

What is the Market Value?

Firstly, it’s essential to understand what market value refers to.

One thing you should know is that people may use other terms for the market value of a property. Some folks will call it fair market value, while others might abbreviate it and call it FMV.

It’s all the same thing. It’s meant to describe the price a property would sell for under normal circumstances. The market value doesn’t account for things like unforeseen issues with the property.

The market value can be used for all sorts of things beyond selling and buying. Property owners use it on their taxes to get a property-based deduction, which relies on this value.

A value this important must have a simple formula, but that’s not the case. There’s no universal way to figure out this value.

Comparable sales and local real estate appraisals are the two basic things that create a fair market value. All of this is better understood after talking to real estate professionals from places like Cape Coral Mortgage.

Still, the following may help you understand how the market value is determined.

Necessary Appraisal

As mentioned earlier, one way to determine a property’s overall market value is through appraisals. You might know what this is.

In essence, they’re an estimate of the value of a property that focuses on the details.

An appraiser will look at the home, the overall condition, the community, and everything that makes up a home and comes up with an estimated price or value of the property.

People should know that appraisals aren’t always accurate. If the market gets a little cold, the value appraised might be too high, and if it gets too hot, the value might be too low.

A Look at Comparable Sales

The other thing used to determine a home’s fair market value is comparable sales. If you’re wondering what that means, it’s a fancy way of saying that your property’s fair value will resemble the sale prices of similar properties near you.

While it’s true that no properties are the same, some similarities are used to compare.

The similarities include things like the size of your home’s lot, the number of rooms, and the number of restrooms you have.

Once you’ve found properties near you that are similar to yours, you’ve taken the next step towards finding your market value. While your home may not sell for the price valued, this should give you a good idea of what to expect.

Other Considerations

An appraisal can include other things to help determine the value of a home or property. If a home is being looked at as an investment property, the appraiser might use the capitalization of income approach when appraising.

The property or home will be valued by the amount of cash the buyer could earn should this buyer rent out the place or flip it after a few modifications. The appraiser might pay attention to comparable properties sold or rented out.

The appraiser might also use the replacement cost method to determine how to price the property. This method asks the appraiser to determine how much it’ll cost to build this same property with a few modern updates to match today’s layout and design standards.

It should be pointed out that the people, the buyers, have some say in the property’s overall value. If many homebuyers want to buy your home, then this demand will spike the price.

You’ll end up walking away with much more than you thought you would get. If you have additional questions, talk to a mortgage broker, real estate agent, or someone you trust with your finances. Hopefully, this breakdown clarifies a few things for you and helps you understand how this value is determined.

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Cape Coral Mortgage has been in Florida for 20 years with over 100 years of combined experience in the mortgage industry. Our team has vast experience in all phases of mortgage lending.

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