How is fair market value of property defined?

The definition of fair market value centers on the concept of a transaction occurring in an open market under normal conditions. Specifically, it refers to the price at which a property would be exchanged between a willing buyer and a willing seller, both of whom are well-informed about the property and are acting in their self-interest without any pressure to buy or sell. This definition captures the essence of voluntary transactions in a competitive marketplace where both parties agree on the price without any coercion.

This understanding of fair market value is essential for appraisers and real estate professionals, as it provides a benchmark for property valuation used in various contexts, including sales, taxation, and financing. This contrasts with other choices where factors such as improvements made by the seller, assessed values set by tax authorities, or average prices of similar properties may not fully reflect the actual market dynamics between buyers and sellers. Each of those alternatives may influence perceptions of value but does not encapsulate the true understanding of fair market value in its purest form, which is based on voluntary agreement in the marketplace.