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The Real Deal
What is a 'fair' price and how is it reached?
By Courtney Ronan
Fair-market value. You hear the expression all the time. But what is it and how is this number determined?
The term "fair-market value" generally means the price at which a seller will freely sell and a buyer will freely buy. A more technical definition--and one with general application--can be found in the state laws of Louisiana. The state's legal code explains that, "Fair-Market Value is the price for property which would be agreed upon between a willing and informed buyer and a willing and informed seller under usual and ordinary circumstances; it shall be the highest price estimated in terms of money which property will bring if exposed for sale on the open market with reasonable time allowed to find a purchaser who is buying with knowledge of all the uses and purposes to which the property is best adapted and for which it can be legally used."
The dollar amount represented by fair-market value becomes important in many cases:
* When a home is priced for sale;
* When an offer is made to buy property;
* When a home is taxed by local assessors;
* When a home is part of a divorce settlement;
* When a home is part of an estate;
* When the government wants to take your home through condemnation.
What makes the concept of a fair-market value interesting is that different people may define this expression to include a wide range of values. This is not surprising, because many factors can play in creating a valuation, including property location, age, lot size, local market demand, condition, financing and related factors.
Where can you find information to help measure fair-market values?
Your best choices are local brokers who are familiar with your area and appraisers.
Brokers can provide a "competitive market analysis" that compares your property with recent sales, as well as similar homes currently on the market. Different brokers may produce differing valuations, so it's important to ask how figures were obtained. (It's not unreasonable for brokers to have differing opinions, because market prices often fall within a range of values.)
Valuations are also available from appraisers. Appraisers are specialists who typically provide independent estimates of value for lenders, estates, insurance companies and others.
Market values are important because, if a property value is set too high, it's likely to languish on the market. If the value is set too low then owners won't get full value.
Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors. Send questions on any topic to: Real Deal, c/o SILVAR, 345 San Antonio Road, Los Altos, CA 94022; call 650-949-9115; or email to ppompei@siliconvalley-realtors.org.
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