A fair market value is the price a couple would pay buying a home from a third party on the open market. Fair market value is not a fire sale or distress price or a sale between members of a family, where special consideration may lower the price.

Fair market value also is a price determined in competition with similar properties near it after a reasonable time on the market. In theory, when a property of the market at a certain price does not sell after a reasonable length of time, the asking price is above the fair market price.

In divorce actions, sometimes other considerations influence the price of real estate transactions between divorcing spouses, and spouses will accept an appraisal by a third party as the value of the family home.

Run-ups in the value of housing -- bubbles, as they are called -- may create a collective buying hysteria whereby buyers purchase homes only to find the market for them rapidly slipping. In the extreme, owners then find themselves with mortgages higher than the fair market value of their homes. This is called negative equity.

The replacement value of a house is generally greater than the fair market value.

See Fair Value. Compare Replacement Value.

Your Suggestion

1. Think House, Not Home
   A home is a state of mind and a habit of the heart; a house is a building on a piece of land. The word home is warm and fuzzy; house is cold and angular. Anyone in the market is well advised to think house, not home. Sophisticated buyers always throw a cold eye on a purchase. In other words, don’t pay more than you can afford. Don’t make yourself house poor buying that so- called "dream" house; it can become a nightmare to own a building you cannot afford. In a real sense, no one can ever buy a home; he or she must make it. Anyone who is buying a house should always remind himself or herself that there will always be another house on the market.
   Contributed on 7/3/2007 by: DivorceDex.com Staff

   Category: Property Valuations   (Applicable in All States)
2. Housing Bubble
   In inflated markets, the bursting of the bubble can trap people in houses they can neither afford nor can sell. This happened in Japan in the 1990s.
   Contributed on 7/3/2007 by: DivorceDex.com Staff

   Category: Property Valuations   (Applicable in All States)

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