Understanding the market value of your home is important if you’re thinking about selling it. It also becomes a relevant figure if you’re buying a new home. 
Not everyone understands what market value is and what it isn’t. For example, it’s not the same as the appraised value. 

Below, we go into what you should know about the calculation of the market value of a house. 

The Basics of Market Value

The market value of a home is often also called fair market value. When you’re buying or selling, the market value will determine how much a home will cost. 

There’s not a standard formula to determine the fair market value. Instead, you have to factor in real estate comps and appraisals as part of the calculation. You may be able to get a very rough estimate by looking at the square footage compared to comparable properties in the same area. 

A professional appraiser can also help you understand the value of a home, at least in terms of an estimate. Still, the fair market value is ultimately about what a buyer would be willing to pay. 

Market value is an expectation of what a property would sell for during the time when you’re calculating the value. If you were to sell your home today, the price you think you could get is the market value. Perhaps you could also look at how a bank would value your home if you were to go and refinance right now or get a home equity loan. 

When you’re estimating value in this way, it needs to be based on the current market conditions rather than an emotional assessment of what you think a person should pay for it. 

A professional appraiser does play a role in helping figure out how much a property is worth. If you’re going to buy a home, the lender will usually hire an appraiser who’s a local. That will help the appraiser understand the more subtle elements of the value of a home. 

Appraisers look at the comps of homes that have sold nearby with not only similar square footage but other similar features. Usually, appraisers will only look at homes that sold within the last six months, but they’ll also consider things that could be different about your home affecting its value. 

What About Online Tools?

Some tools let you estimate the value of your home online, and these are fine as a starting point, but they’re not going to be incredibly accurate. These tools don’t take into account many of the current and localized events that are likely to play a role in how the buyer perceives a home. 

Market conditions play a significant role in the valuation of a property. 

Value is Subjective

While you can estimate the market value of a home, the price is likely going to differ from this in the end. There are a lot of factors that are subjective when it comes to the value of a home. For example, having an inground pool can be more valuable for one buyer, but for another buyer, it can be a downside.

Value isn’t always about things you can see either. For example, a buyer could pay more for a property because it’s close to the school they want their child to go to, whereas another buyer might not have children, so this isn’t a concern. 

Appraised Value vs. Fair Market Value

In theory, both the appraised value of a home and the fair market value should be the same. The theory doesn’t always happen in practice, though. 

An appraised value is a type of valuation assigned at a certain point in time. It’s a snapshot of that time. Market value can fluctuate even in a short time window based on local market forces and economic conditions. 

While an appraiser decides on the appraised value, buyers decide the fair market value at the end of the day. 

There’s another term to be aware of, which is an assessment. An assessment is not the same as an appraisal, at least generally. A traditional property appraisal might be used if you’re selling your home. An assessment is an appraisal only used for tax purposes. You can’t use a tax assessment instead of a traditional property appraisal. 

Assessors will consider the market value of a home, and the assessed value does go up as the market value increases, though.