If you’ve recently inherited a home as part of an estate, one of the first questions that often arises is, “What is this property worth?” While the emotional value of a family home is immeasurable, understanding its fair market value is essential for legal, financial, and tax-related reasons.
As a real estate professional who specializes in probate, I frequently work with executors and heirs trying to make sense of this process. Below, I’ll break down what fair market value means, how it’s determined, and why it matters for the estate and the people involved.
What Is Fair Market Value?
Fair market value (FMV) refers to the price that a willing buyer would pay and a willing seller would accept for a property on the open market, assuming neither is under pressure to act. It reflects what the property would realistically sell for under normal conditions—not necessarily the price paid years ago, or the price on a sentimental Zillow estimate.
How Is Fair Market Value Determined?
There are a few ways to establish the FMV of an inherited home:
- A Comparative Market Analysis (CMA) from a real estate agent can offer a general idea based on recent sales of similar homes in the area. While useful for decision-making, this is not a formal appraisal.
- A Professional Appraisal, conducted by a licensed appraiser, provides a more detailed and legally recognized valuation. This may be required by the probate court, the IRS, or in cases involving multiple heirs or disputes over value.
- A Tax Assessor’s Valuation is sometimes used, but it’s often outdated or based on different metrics. It’s best not to rely on this alone when accuracy is important.
Why It Matters
Knowing the fair market value of an inherited property can impact several key areas:
- Estate Taxes: Depending on the size of the estate, federal or state estate taxes may apply. These are based on the FMV of all estate assets, including real estate.
- Capital Gains Taxes: If the heirs choose to sell the home, they may be subject to capital gains tax on the profit. However, the IRS allows for a “step-up in basis,” meaning the original cost basis is adjusted to the FMV at the time of the decedent’s death. This can significantly reduce or eliminate taxable gains when the property is sold.
- Equitable Distribution: If multiple heirs are involved, an accurate FMV ensures everyone receives a fair share of the estate’s value—especially if some want to keep the property and others want to sell.
When Should You Get an Appraisal?
Not every situation requires a formal appraisal, but it’s generally recommended if:
- The home will be sold as part of the estate
- There are multiple beneficiaries
- The estate exceeds the federal or state estate tax threshold
- There is any disagreement over the property’s value
Next Steps
If you’re navigating probate and unsure about the value of a home you’ve inherited, I’m here to help. As a probate-certified real estate professional, I can provide guidance, coordinate with trusted appraisers, and help you make informed decisions that protect the interests of everyone involved. Understanding the fair market value of an inherited home isn’t just about numbers—it’s about clarity, fairness, and peace of mind during a time that can already feel uncertain. Let’s take the next step together.