Homes and Real Estate
Information For Home Buyers

What Determines The Value of a House?

If you said "what it cost to build it", or "what I paid for it", you missed!

There is only one factor that determines the value of a house: Fair Market Value.

Fair Market Value is the price a willing buyer will pay and a willing seller will accept for a property that has been exposed to the market for a reasonable length of time, where neither party is under duress.

In other words, if 3 other homes exactly like yours (exact same size, condition, and amenities) sold for $100,000 the Fair Market Value of your house would be $100,000.

No matter how much you want to believe otherwise, what you paid for the house, what it cost to build, nor any other factors have anything to do with what the house is worth today.

How do you determine Fair Market Value? By finding sales of properties that are reasonably similar to the property. In a subdivision where there are a lot of homes that were built with the same floor plan it is relatively easy to find "comparable" sales. The problem is when there are no homes exactly like it, or there have been no sales of those homes in the last 6 months to a year.

In this case, sales of properties that were similar, but not exact, are used with adjustments for differences in condition, amenities, square footage, and other factors that affect the value.

Even a different view can make a difference in price. For instance, a home in a coastal community that has a view of the ocean will be worth more than a home that does not have a view of the ocean. Along this same line, a home with an unobstructed view of the ocean is worth more than one that has other homes between it and the ocean that obstruct the view. How much can this affect the price? In a recent survey it was determined that the "view" could add anywhere from 10% to 100% to the price!

Unless you are very sure of what you are doing and have done your research very carefully you might want to consider seeking a professional opinion before determining what to ask or what to pay for a home.

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