What Is Fair Market Value (and Why You Need to Actually Understand It)
Fair Market Value (FMV) isn’t just some textbook number, it’s the price your property would actually sell for on the open market, under normal, unforced conditions. No fire sales. No wishful thinking. Just real data, real timing, and real buyers. Getting to that number isn’t magic. It’s a combination of analysis, market experience, and a little bit of economic weather forecasting.
Here’s how the pros figure it out:
1. Comparable Sales (a.k.a. “Comps”)
This is your real-world reality check. Appraisers (and savvy brokers) look at what similar properties have sold for recently in the same or comparable areas. Then come the adjustments: location, size, condition, zoning, age, and use all of these tweaked to land on a value that makes sense today. Think of it as:
“If your building went head-to-head with that one down the street, who wins—and by how much?”
2. Income Capitalization (a.k.a. “Show Me the Money”)
For income-producing assets (think: industrial, office, retail), the Income Approach is the main event.
Here’s the formula:
📈 Rental income
💸 Operating expenses
🔢 Market cap rate
What’s left? Net Operating Income, and the market tells us what kind of return buyers expect on that income stream. That expectation? That’s your value driver.
3. Replacement Cost Approach (a.k.a. “Plan B”)
Rarely used, but not irrelevant. This method looks at what it would cost to rebuild the property today, minus depreciation. Think insurance valuation logic.
Useful for:
✔️ New builds
✔️ Special-use assets (churches, schools, niche buildings)
❌ Not super helpful if the market is hot and comps are plentiful
4. Market Conditions & External Forces
This is where the art meets the science. Is the area booming? Is a new GO station or public transit coming in, what is the growth plan for the area, revitalization, rezoning, repurpose? Is industrial land scarce in the submarket? Macro trends like interest rates, infrastructure investments, zoning changes, and employment shifts all play into how aggressively (or cautiously) the market values your asset.
Bottom Line?
Fair Market Value isn’t one number, it’s a moving target influenced by real data, market sentiment, and a bit of timing luck. But the key is this: You need to understand what’s driving it, or you’ll either leave money on the table or overpay for someone else’s fairy tale.
Want to know your property’s fair market value?
We’ll break it down—no smoke, no mirrors. Just clear numbers and a strategy that actually makes sense.
Susan Williamson
Commercial Realtor – Williamson Commercial Realty
I don’t do cookie-cutter. I do what works, for you.
Client Focused | Solution Driven | Commercial Realtors
