What defines Fair Market Value?

Fair Market Value is defined as the price that a willing buyer and seller agree upon when both parties are knowledgeable about the relevant facts and are acting in their own best interests, without any external pressure or compulsion to complete the transaction. This concept emphasizes the voluntary nature of the transaction and assumes that the buyer is motivated to purchase while the seller is equally motivated to sell, both having a reasonable understanding of the market conditions and property characteristics.

Other options refer to different types of valuations that do not align with the traditional definition of Fair Market Value. The amount properties sell for in a forced sale typically results in prices lower than Fair Market Value due to the urgency or pressure on the seller. Value determined by government appraisal standards may reflect a specific regulatory or taxation purpose, which does not necessarily equate to what a buyer would willingly pay. Lastly, expected future earnings from the property tie into investment valuation and potential income generation, but they do not directly establish Fair Market Value as they focus on speculative future performance rather than a current sale price between willing parties.