Determining Fair Market Value

How do you figure out how much your property is really worth?

There are several different ways to determine the fair market value (FMV) of real estate, depending on the property type.

Let’s start with a home: the most common way to determine the value of a home is by looking at the comparables. At LJ Realties, we look at at least four comparable homes that have sold in the surrounding area recently, as well as four active homes that are listed in the area.

You can’t rely exclusively on active prices to determine your FMV, because there can always be someone who’s charging way too much. Selling prices are therefore a much stronger measure, while asking prices are simply a benchmark for comparison.

When you’re looking at a condo, the price per square foot comes into play. There are usually several condos in the same tower that have very similar attributes, so we can break down the FMV based on the size of the condo. Other factors include whether it has a garage space included, a locker included, what the view looks like, and how high up it is.

Lastly, let’s look at a revenue property. That’s where we usually use two different methods.

The first method is the comparable method, like we use with the standard residential home, and the second method is a cap rate method, which requires us to analyze the property’s revenues and expenses to determine its capitalization rate.

We take into account what is happening in the market right now, and the multiple at which they’re trading: is it 15 times their net revenue? Is it 20 times? Is that a 5% cap or a 4% cap?

These are the things we’re going to look at to determine its FMV.

So, how do you evaluate a given property? It really depends on the type of property that you’re looking at.

If you need help understanding what your home is really worth, we have lots of experience with this exact topic! Reach out today and we’ll answer any questions you may have.

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