There are 4 different ways to establish Fair Market Values:
It's very important for Real Estate Investors (REIers) to know how
much a subject property is worth before you invest, in real time.
View the available tools below that REIer's use to
establish the Fair Market Value (FMV) of property,
the monetary value of the property after repairs
(or renovation) and in its current condition.
- Comparative Market Analysis (CMA)
A real estate professional you are working with can do what is known as a CMA. They select recently sold properties that are similar to the subject property, and in the same geographical area.
These are sometimes referred to as “3/3/3 CMAs”: At least three comparable properties, within a maximum of a three mile radius, sold within the past three months. None of the “3s” are chiseled in stone, but are pretty good gauges of current market value.
A second method to determine FMVs is to pay close attention to currently listed (vs. sold) properties. Including listed properties in the evaluation mix allows for an assessment of the most current competition and can lead to a decrease or increase in how much the “buy” or “sell” price for a property might be, compared to only sold properties.
- Broker’s Price Opinion (BPO)
A BPO is performed by a licensed appraiser, real estate broker or agent. A BPO can be either a full interior report or an exterior drive-by. The BPO should include taking pictures, garnering six comps (3 sold and 3 listed properties), as well as a drive-by of the neighborhood.
*The final BPO is used to support the real estate professionals' Fair Market Value (FMV) opinion.
- Appraisals
This is the process of developing an opinion of current fair market value, for real property and can only be conducted by a licensed professional appraiser.
Typically, the appraiser will issue a Uniform Residential Appraisal Report or URAR for standard residences (Fannie Mae Form 1004).
The report requires four elements be included: clear, descriptive photos of the property and comparable sales used; exterior and interior inspection of the subject property; an exterior building sketch of the improvements that indicates the dimensions; a street map that shows the location of the subject property and of all comparable properties that the appraiser used.
- Comparables (Comps)