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  • Writer's pictureJesse Ledbetter

Fair market value vs. Appraised value

In this article the Washington Post and their guest show that neither have a firm understanding of what an appraisal, mortgage, or "value" is.

The fair market value of a home is typically defined as the price a buyer will pay for a seller’s home. In theory, the fair market value and the appraised value of a home should be the same, says Joe Buffington, broker/owner of Re/Max Realty Center in Olney, Md.

This assumption shows 3 basic misconceptions:

  1. That "fair market value" is whatever "someone" is willing to pay.

  2. That lenders care what "someone" is willing to pay.

  3. That there is some "theory" that says market value is equal to whatever "someone" is willing to pay

In the run-up of the housing market from 2020-2021 it was common for buyers to pay well above market value for homes. This was widley knows, with buyers AND agents in early 2022 fearing that the market was in a "bubble." Market Value is a defined term in a mortgage-backed real estate transaction, with the definition not being able to be redefined. The definition is set by FNMA for all conventional, FHA, USDA, VA loans:


"Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

  • buyer and seller are typically motivated;

  • both parties are well informed or well advised, and each acting in what he or she considers his/her own best interest;

  • a reasonable time is allowed for exposure in the open market;

  • payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and

  • the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."

That is THE definition of market value. Fair Market Value has no such definition. What Mr. Buffington appears to be advocating for is the old realtor joke that "Market value is whatever someone is willing to pay." This gets laughs at every appraiser conference from the appraisers, lenders, and regulators - so I can only assume they mean it as a joke.


A dying man in the desert will pay any sum to get water, but a young boy providing that man water can't then turn around and sell water in their desert village for that price. THIS is the difference between market value and this "fair market value" definition that Mr. Buffington advocates for.


If a buyer has unlimited cash, they can pay any sum for anything. This is the "someone" that Mr. Buffington imagines. Sadly for sellers, this "someone" is few and far between. Most homes in the USA sell with a mortgage, and the vast majority of those have to pass FNMA standards. So, Mr Buffington, attend a class on what a mortgage is... and Washington Post, perhaps ask someone involved with mortgages for their opinion about mortgages.




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