Determine fair market value

Learning to determine fair market value (or the related "after repair value")is the smart first step for discount property investors or wholesalers. If you're a wholesaler or a smart income property investor, your "Maximum allowable offer" is dependent upon an accurate appraisal of what the market considers to be a good-deal-price on a piece of property.

Fair Market Value: My definition...

The best way to usefully understand this concept is to think of "market value" as the projected price (or price range) that a substantial segment of your target market would find a commodity reasonable to purchase right now.

If you're a property seller, or looking to buy properties, you need to understand that there's no "unfair" or "fair" offer in real estate...Only what your market is willing to buy for right now.

What this means is:

• What price you bought the property for doesn't count
• What price your neighbor sold for last year, doesn't count
• What you heard on the news doesn't count
• What your real estate agent, your appraiser or your grandma told you also doesn't count

Ultimately, the only thing that counts if you're a seller is what does the market think about your price?...

If you don't get any offers to buy your property, you haven't priced your house at fair market value. Simple!

If you're a property seller, or looking to buy properties, you need to understand that there's no "unfair" or "fair" offer in real estate...Only the price your market is willing to bear right now.

How to determine fair market value when buying property

However, I've found that some real estate professionals don't do a good job helping investment property buyers understand what makes a good real estate deal, despite being real estate agents and having access to the listing service.

So here's a small lesson for determining "fair" market value.

To conservatively determine fair market value, you should:

• Compare your desired property with properties with similar square footage, real estate style and similar amenities
• Compare with properties that are in as close a proximity as possible; same subdivision if you can help it or within 3 miles or so, in most city and suburban neighborhoods
• Compare what properties have sold for rather than what properties are listed for
• Compare sold prices in as narrow a time frame as possible from the time you're buying.

So in summary, before you buy a 2,800 square foot split foyer property in the Rio grande sub-division, you should check to see what other 2,600 to 3,000 square foot split foyer houses have sold for in the same subdivision over the last 3 to 6 months.

During periods of rapid change in the real estate markets, the need to check for comparable sales within a narrow time window is even more important.

There are so many aspects to this very important topic that it's impractical to attempt to cover them all here. If you're a real estate wholesaler, investor or real estate professional,I recommend that you subscribe to my real estate investment education newsletter where I take an in-depth look into these and other topics.