Those of us living in Mexico who are from other parts of North America often assume that fair market value in real estate is the same as back home. But do not take fair market value for granted in Mexico. it is actually not common to have sold market data outside of the United States or Canada.
First, in order to have information about sales prices and to adjust for differences in properties, data needs to be available.
If we start out with the objective to have fair market value, where do we as consumers normally go? There are no websites like Zillow and Trulia, which offer a large number of properties for sale as well as average sales prices by areas. Until two years ago, there was no genuine multiple listing system for AMPI (our local association for real estate professionals) agents as a group to collect data effectively so buyers or sellers could be properly advised on fair market value.
The classic definition of fair market value is the amount for which real or personal property is sold in a voluntary transaction between a buyer and seller, neither of whom is under any obligation to buy or sell.
If the buyer and seller are not informed through the open market, they rely on real estate professionals or appraisals to help determine value based on sales data of similar properties or properties adjusted for differences.
Commerce, as we know it, works efficiently and to the benefit of the whole, if information is shared. Controlling prices comes when a few have information to the detriment of the many. It is unconscionable when a seller or his/her agent keep market information from a buyer and sell them a property 100-to-200 percent over its fair market value.
The issue is control. Knowing the fair market value in a real estate market enables buyer and seller to have control. Knowing fair market value can help price a home for sale, negotiate a purchase price of a property for sale and resolve an estate or divorce settlement.
Factors that help determine fair market value:
1. Comparable Solds. Within a certain time-frame, comparable solds help determine the subject property value. Adjustment can be made for differences in size, location and condition of a property.
2. Market Trends. Low demand versus high demand affects price, as well as high inventory versus low inventory.
3. Particular Conditions. If properties have mortgages or there are defaults with the lender taking the properties back, the listed properties may be offered at a much lower price to move inventory. Builders also can compete against an individual seller who wants to re-sell his/her real estate within their development.
4. Comparative Market Analysis. This is a common way to determine a property’s fair market value. For it to be a valid, there must be sufficient information on sold properties and their characteristics in addition to price, for example condition, location, debt, etc.
5. Appraisals. Measurements and improvements to a property as well as allowable uses through zoning and permits are considered. Appraisals are usually done by engineers or appraisers who also consider in their reports the comparables or sold prices. Traditional appraisals are to find fair market value from market value, replacement cost and income.
AMPI is continuing to learn and become more proficient with its Flex Multiple Listing System. As AMPI agents become more knowledgeable and proficient, fair market value will become more available.
This article is based upon legal opinions, current practices and my personal experiences. I recommend that each potential buyer or seller of real estate conduct his/her own due diligence and review.