Fair market value

Fair market value – a definition

The fair market value of a property denotes the sales price that is likely to be achieved in the event of a sale.

For this reason, the fair market value is also the basis for determining the price. However, a property valuation only serves as a guide – the price actually achieved in the sale can exceed the fair market value, as well as being lower.

How do you calculate the fair market value?

A property valuation comprises various processes to determine the price. The process is chosen depending on the type of property and the requirements of the seller.

The sales comparison approach

In this method, which is also known as hedonic pricing, the fair market value of a property is determined using reference values (= sales prices achieved in the past).

The downside to this method is that if an insufficient amount of usable information is available, it simply can’t be considered. It is also not possible to use this method to reliably determine the value of property with an above- or below-average finish, of special value, in an exceptional location, etc.

The earnings value approach

This is the main method used for leased residential and commercial properties. It involves comparing running costs for the upkeep of the property with achieved and achievable yields.

The asset value approach

In this method, the costs required to repair the property are assessed. One of the advantages of this method can be that the original purchase price has no significant effect.

Certain basic principles and standards apply to property valuations in Switzerland: Art. 394–406 (mandates) in the Swiss Code of Obligations, SIA standards and SIA document D 0213. The fair market value is determined based on the earnings value and the real value of the property (Section 12 Art. 2 Valuation Directive (SchäV)).

The Valuation Directive (Section 12 Art. 1) defines the fair market value as a value that results from the “total of all value-increasing factors, such as land and construction value, legal conditions, possible uses, actual characteristics, particular location and quality”.

For example, for a building with land, the following factors will be considered in determining the fair market value, among others: land value, living space, usable floor area, year of construction, condition of the building (top condition or in need of renovation, some defects), the characteristics of the building (e.g. garage, lift, basement rooms, balcony) and location.

The result is that, in certain conditions, the value determined deviates from the price eventually achieved on the market. Upwards if a prospective buyer is willing to pay a higher price due to the location or the architecture. Downwards if, for example, supply in this particular location currently exceeds demand.

Which documents do you need to calculate the fair market value?

It depends on the property, so this overview should only serve as an initial aid to show you which documents are most commonly required for a property valuation in our experience.

Always:

• Excerpt from the land register (land registry)

• Cadastral plan (Grundbuchgeometer)

• Suspected contaminated sites register (canton)

• Building insurance policies (insurance company)

• Safety certification of low-voltage installation (electrical installer)

• Building regulations and zoning plan (building authorities)

• Municipal plan and location plan

• Civil law agreements, e.g. related to construction permits, agreements with neighbours

• Imputed rental value or tax value

• Information about financing

• Building plans at a scale of 1:100, including floor plans, cross-sections and façade views

• Building description

• Current, informative images

Also required for condominium ownership:

• Verified ownership and plans

• Rules, usage rules, administration

• Minutes from the last meeting of condominium owners

• Sales documents

• Calculation of additional costs and budget

Also required for rental properties:

• Letting agreements

• Rent schedules

• List of running costs for the upkeep of the property

We know the market value of your property

Do you want a reliable calculation of the fair market value of your property? We offer two free options with no obligations.

For quick access online, you can use our property valuation tool. Would you prefer an on-site inspection and an in-person discussion? Simply book an appointment here – we will be happy to advise you!