A financial crisis could happen to anyone at any time. If you have to file for bankruptcy, and you are a homeowner, how does your home come into play?

A bankruptcy filing includes forms called schedules. Your schedules must list the value of each item of property you own. The legal standard for home valuation in bankruptcy is fair market value.

At this point, you might be thinking, “Can I simply put my best guess of my home’s fair market value?” The answer is, “Yes” you can. Unfortunately, your best guess may turn into a big mess if it totally misses the mark . In addition, it may not be able to stand up under scrutiny.

Three Ways to Determine Fair Market Value – and their associated cost


Formal appraisal – $$$
This involves hiring a real estate professional to come to your home, inspect it, and run an analysis of the market in your area. The appraiser will then provide a report that indicates a professional opinion fair market value for your house.



Formal market analysis – $$
This is a second, but less accurate option. A real estate professional will look at market conditions in your area and analyze recent home sales and current home listings in your area to determine what your house would likely sell for. If homes were apples, the formal market analysis method would be like finding out which isle in the grocery your apples are located in, and what the average price of apples are. The formal appraisal method would be like a report telling you the price of your specific apple (i.e. red delicious) and perhaps how that price compares to other apples.



Local listings comparison – $
This is a third method of determining fair market value. Let’s call it the do-it-yourself method. You review real estate listings in your neighborhood and estimate a value for your own home (taking into account the condition of your home) based on what other houses in your area are selling for.



Selecting the valuation method for your situation will depend on your purpose. The more important your home value is to your situation, the more thorough and formal a method you should choose.