How to determine the fair market value of a home?

What you'll learn

— What is fair market value and how it differs from other property valuations
— Proven methods to determine your home's fair market value
— Key factors that influence property valuations
— When and why fair market value matters for homeowners

Two houses might look nearly identical and sit just doors apart, yet sell for very different amounts. Often, this gap stems from how well the fair market value (FMV) of each home was understood and leveraged—a concept that digs deeper than a basic sales price to reflect a property's real standing in the market.

Whether you're looking to sell, refinance, or are just curious about your home's worth, knowing how to pinpoint fair market value puts you in a stronger position. It’s not guesswork—it’s a layered process that combines market trends, property specifics, and location variables.

Many people depend on generic online estimates or outdated assessments, which can lead to costly miscalculations. An online tool might peg your home at $400,000, while a full appraisal could reveal it’s closer to $450,000—potentially altering your financial outlook significantly.

This guide walks you through the meaning of fair market value, explores proven ways to determine it, and explains why getting this right matters. You'll also see how it differs from assessed or appraised values and why this distinction is key in everything from mortgage applications to estate planning.

Let’s begin by exploring what fair market value really is—and why it’s so important.

What is the fair market value of a house?

Fair market value (FMV) refers to the price a property would likely sell for under typical conditions in an open and competitive market. It’s not necessarily the price someone just paid—rather, it reflects what they should pay when all the right factors are in place.

This concept is based on the idea of a transaction between a willing buyer and seller, both of whom are well-informed, acting independently, and not under pressure. This hypothetical setup helps strip out emotion, urgency, or special circumstances that might skew a sale price.

There are four primary conditions that define a fair market value transaction:

— Market exposure: The home has been listed publicly for a reasonable period

— Informed parties: Both buyer and seller know key details about the property

— No pressure: Neither side is forced to act quickly

— Arm’s length: The deal happens between unrelated parties acting in their own interest

FMV is frequently used in formal situations like legal proceedings, tax reporting, and insurance evaluations—areas where objectivity is critical. In most cases, a real estate agent will put together a report, called a comparative market analysis (CMA), that estimates the value of a specific property by comparing it to similar properties that have recently sold in the same area.

...in as little as 3 minutes – no credit impact

Fair market value vs. market value

While often used interchangeably, fair market value and market value are not quite the same. Market value reflects what a home might sell for today, based on demand and recent comps. Fair market value builds in more idealized conditions to provide a more neutral estimate.

Here's how they differ:

Fair Market Value	Market Value
Based on standardized assumptions	Driven by actual market behavior
Ignores urgency or emotion	Responds to current supply/demand
Used in legal, tax, and financial settings	Common in day-to-day real estate deals
Anchored in theoretical conditions	Tied to what buyers are willing to pay now

For example, in a hot market, your home value might spike to $500,000 due to high demand. But under fair market conditions, without bidding wars or urgency, it might level out closer to $490,000.

Appraisers typically base FMV on similar homes, adjusted for features, condition, and location. Understanding this distinction is especially helpful when you’re facing legal, financial, or estate-related decisions.

How to determine the fair market value of a home

Accurately figuring out your home’s fair market value means going beyond guesses or online calculators. There are three main methods professionals use—each one suited to a particular kind of property or situation.

Three proven valuation methods

Comparable sales (comp sales)
This method is the go-to for most residential properties. It involves finding homes nearby that recently sold and adjusting for any differences.

✅ Best for: Typical homes with plenty of comps
✅ Effective when: Sales occurred within the last 6 months
✅ Adjustments include: Size, layout, lot, condition, and amenities

Cost approach
This one looks at how much it would cost to rebuild the home from scratch today, minus depreciation, and then adds in land value.

✅ Best for: New builds, one-of-a-kind homes, or insurance valuations
✅ Based on: Construction cost – depreciation + land value
✅ Downside: Estimating depreciation can be tricky

Income approach
Used mostly for rentals and investment properties, this approach evaluates how much income the property could generate.

✅ Best for: Duplexes, multi-family units, rental homes
✅ Formula: Net rental income ÷ capitalization rate
✅ Factors in: Expenses, vacancies, local rent trends

Method	Ideal For	Reliability (Single-Family)	Time Required
Comp Sales	Most homes	High	1–2 hours
Cost	Unique builds	Medium	2–3 hours
Income	Investment properties	Low	1–2 hours

You can hire a licensed appraiser for a detailed report, or work with a real estate professional for a comparative analysis. Online tools are convenient but often less precise.

Factors that affect fair market value

Many elements play into how much your home is worth. Some you can control—like upgrades—while others depend on broader trends or location.

Location is king.
Proximity to top schools, public transit, low crime, and desirable amenities can significantly boost your home's value—often by 10–20%.

Other key factors include:

Property Features

— Square footage: Each extra foot adds value, often between $50–$150

— Beds & baths: An additional bedroom can add 5–10% to the value

— Lot size: Bigger lots often bring a premium, depending on the neighborhood

— Design and layout: Certain architectural styles or open floor plans appeal more to buyers

Condition & Upgrades

— Age: Newer homes tend to appraise higher, but updated older homes hold strong

— Maintenance: Poor upkeep can drag value down by as much as 15%

— Quality: High-end materials and appliances add perceived and real value

— Recent renovations: Kitchens and bathrooms usually yield the highest ROI

Market Conditions

— Interest rates: Lower rates mean more buyers can afford more home

— Job growth: Local economic health supports property values

— Inventory: Fewer homes on the market push prices up

— Zoning laws: Can either increase or restrict future development potential

There are some online tools, like home value estimators, that will be able to give you a ballpark understanding of fair market value, but cannot take into account unknown aspects like maintenance and recent renovations. Understanding these helps you time the market or decide which home improvements are likely to pay off.

Uses of the fair market value

Fair market value plays a much larger role than most homeowners realize. It’s key in several legal and financial scenarios:

Estate planning

When someone passes away, FMV is used to determine the value of real estate included in their estate. This sets the tax basis for heirs and helps calculate any estate tax owed.

✅ Even asset split: Accurate valuations make it easier to divide inheritance fairly
✅ Tax optimization: Knowing FMV helps minimize taxes
✅ Regulatory compliance: Professional valuations meet IRS standards

Appraisal reports

Lenders won’t approve a mortgage or refinance without a property appraisal based on FMV. It helps them decide how much they’re willing to loan.

Insurance companies also use FMV to calculate how much coverage a homeowner should carry. Local governments often reference a portion of FMV to set property taxes.

Refinancing

If you're looking to refinance, an accurate FMV helps determine how much equity you have, which affects:

— Interest rates
— Loan options
— Mortgage insurance requirements

Even a $20,000 difference in valuation could significantly impact your refinancing terms or savings potential.

At Better, we combine precision with speed—offering fast, reliable appraisals and refinance options that help you tap into your home’s fair market value with confidence and fewer fees.

Curious how much equity you could access with your current home value? See what you qualify for with Better’s online refinance and home equity tools.

...in as little as 3 minutes – no credit impact

Fair market value FAQs

Is fair market value the same as assessed value?

No. Assessed value is used for property taxes and is usually set by your local tax office. It’s typically lower than FMV and may not reflect the current market.

For example, a house with an FMV of $500,000 might have an assessed value of $400,000, especially if assessments lag behind actual market trends or ignore recent upgrades.

What else does FMV affect?

— Insurance: Ensures you’re not under- or over-insured

— Capital gains taxes: Used to calculate how much tax you owe after selling

— Divorce settlements: Helps fairly split marital assets

— Eminent domain: Used to determine compensation if the government takes your land

— Price setting: Helps set realistic listing prices

— Tax appeals: Can be used to challenge inflated property tax bills

Is appraised value the same as FMV?

Not exactly. An appraisal gives a professional’s opinion of value at a specific moment. It often aligns with FMV but might differ depending on the appraisal’s purpose, timing, and data used.

Appraisers strive to reflect FMV, but outcomes can vary depending on their interpretation of local sales and property features.

Take control of your home's true value

Having a clear understanding of your home’s fair market value is one of the most powerful tools a property owner can have. It influences major decisions, from financing and insurance to selling or planning your estate.

While online tools can offer a ballpark estimate, nothing beats the accuracy of a certified appraiser or a seasoned local real estate expert.

Fair market value boils down to what a well-informed buyer would reasonably pay, under ideal circumstances, for your home. It’s not always the highest number—but it’s the most accurate one you can use when making big financial moves.

If you're serious about making the most of your real estate investment, it's worth finding out what a property is truly worth. But the first step to doing that is understanding what your homebuying budget is by checking out today's rates and getting pre-approved.

...in as little as 3 minutes – no credit impact