Fair Market Value
The price that a property would sell for in the open market between a willing buyer and willing seller, both having reasonable knowledge of relevant facts and neither being under pressure to buy or sell. This value is typically determined through comparative market analysis, professional appraisals, or actual market transactions of similar properties.
Example
“The appraiser determined the fair market value of the home to be $450,000 based on recent comparable sales.”
Memory Tip
Fair Market Value = what you'd get at a fair (unbiased) market where both buyer and seller are willing and informed.
Why It Matters
Understanding fair market value helps sellers price their homes competitively and helps buyers make informed offers, preventing overpaying or underselling. It's also crucial for property tax assessments, insurance coverage, and mortgage lending decisions.
Common Misconception
Many homeowners confuse fair market value with their desired selling price or the amount they paid for the property, but market value is determined by current market conditions and comparable sales.
In Practice
A homeowner wants to list their house for $450,000 because they need that amount to pay off their mortgage, but a comparative market analysis shows the fair market value is $420,000 based on recent sales of similar homes in the neighborhood.
Etymology
Combines 'fair' from Old English meaning 'just' or 'unbiased' with 'market' from Latin 'mercatus' meaning 'trading place,' representing an unbiased trading price.
Common Misspellings
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