What is a Fair Market Value?
In its most basic form, fair market value (FMV) refers to the price at which an item would sell on the open market. Fair market value has come to represent the price of an asset under the following common set of circumstances: prospective buyers and sellers are reasonably knowledgeable about the asset, acting in their own best interests, not being under undue pressure to trade, and being given a reasonable time to complete the transaction.
Given these circumstances, an asset’s fair market value should be an accurate estimation of its worth. In tax law and the real estate market, the word is often used.
Fair Market Value Definition
The price at which a willing and educated buyer and seller would exchange property is known as the fair market value. The phrase is used in the Internal Revenue Code, as well as bankruptcy laws, several state laws, and by a number of regulatory agencies.
Fair market value is assessed at a hearing in several jurisdictions across the United States. Even if the borrowers or loan guarantors relinquished their rights to a fair market hearing in the loan contracts, the courts are obligated to undertake fair market hearings in certain jurisdictions.
How does Fair Market Value Work?
Because it considers the economic principles of free and open market activity, the phrase fair market value is purposely distinct from comparable concepts such as market value or evaluated value. The phrase market value, on the other hand, refers to the price of an item in the marketplace. As a result, while the market value of a home can easily be determined on a listing, determining the fair market value is more challenging.
Similarly, appraised value refers to the value of an asset in the judgment of a single assessor, which does not automatically qualify the evaluation as fair market value. An appraisal is generally sufficient in circumstances when a fair market value is required.
The term “fair market value” is frequently employed in legal contexts because of the extensive considerations it makes. Fair market value in real estate, for example, is frequently utilised in divorce settlements and to determine compensation for the government’s use of eminent domain. Fair market values are also frequently used in taxation, such as when establishing the fair market value of a property for the purpose of claiming a tax deduction following a casualty loss.
How Do You Calculate Fair Market Value?
There are a few alternative approaches to appraise rather than calculate fair market value. First, by the price the item cost the seller, as determined by a list of sales for similar assets, or by an expert’s assessment. Based on their experience, a diamond appraiser, for example, would most likely be able to recognise and calculate a diamond ring.
How Do I Know the Fair Market Value of My Home?
Professional appraisers examine real estate property and can tell you its fair market worth based on standards, norms, and national and local legislation.
Last Updated on 05/25/2022 by Mark Does
Financial Consultant and Author