Fair market value (FMV)

Fair market value (FMV) is the price that a property would sell for on the open market. It is the price that a willing buyer and seller agree upon, where neither is under compulsion to buy or sell, and both have reasonable knowledge of all relevant facts.

  • A property's fair market value may differ from its appraised value or assessed value for tax purposes.
  • Assessors typically use a lower standard when valuing a property for tax purposes, considering only factors directly relevant to the assessment.

When it comes to tax assessments, various factors come into play. Assessors often consider the sale price of similar properties in the neighborhood. Conversely, appraisals conducted for insurance purposes take into account recent real estate market trends, location specifics, and construction type.

  • Specialized appraisers are usually tasked with determining the fair market value of specific property types.
  • In certain situations, this value may be established through mutual agreement between buyers and sellers or via negotiations between conflicting parties.

In complex scenarios like corporate mergers involving properties critical to the merger process, an impartial third party might be engaged to ascertain the fair market value. Additionally, government agencies may utilize their own methodologies to set fair market values for regulatory or taxation reasons.

The fair market value acts as a reference point against which other prices can be evaluated. It offers insights into an item's worth in the open market, proving invaluable in various contexts.

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