In a market that has run off a cliff then continued to stumble down the rest of the hillside, how is fair market value of a property determined? Here's a hint: it's not the Zestimate.
Fair Market Value is determined quite simply by what people have demonstrated they are willing to pay for a similar property in the same or a similar neighborhood of a similar size and condition. In our particular market, that also includes pools and proximity to water. In short - recent sales of similar properties determine the fair market value.
For this reason, many people at the start of the plunge in value were incredulous that their properties - if the owners were not in a financially distressed situation personally - were being compared to the short sale and REO sold figures. For the past three years at least, those distressed sales have set the pace for Fair Market Value.
Today, as the number of distressed properties on the market diminishes (Only 18% of actively listed properties are distressed - short sales or REOs), there are signs that that trend could change again but not immediately.
Just as for non-distressed sales, REO and short sale agents will already have conducted research to determine the Fair Market Value of a property. Of course, the owner or lender may have had something to add, but your agent can also provide you with information on their findings of fair market value of a particular property.