Fair Market Value

Generally, market value refers to the price of an item that a seller can expect from a buyer. This value is determined in a fair negotiation.  An item can be anything ranging from a real estate property to a car or any other good that can be traded. The value of the item is determined by professional appraisers and is based on a variety of key factors. Fair market value (FMV) is one such determiner of value of an item. This value is the maximum and minimum price that a buyer is willing to pay for the item.

A Fair market value can either be more or lesser than the purchase price of an item. For example, FMV of a real estate property can be high or low depending on the current trend. Fair market value is purely market determined value. It does not depend on any personal or self evaluation of property. While FMV of the item is more if the item is antique or has undergone any kind of changes.

Fair market value (FMV) is generally used in legal ways, viz. for taxation, by the buyers and property assessors or by the insurance companies to asses the current price (worth) of the item.  Insurance companies evaluate the value of the properties for insurance purposes when people lose items in accidents or disasters. A person may receive some money back for any car accident but the money is mostly not enough to fully buy new car. Cost of replacement is often higher than fair market value.

There are many formulae available to determine the fair market value. For example the value of a real estate property depends on multiple factors like purchase price, years of ownership, current market trend, condition of the property, any legal cases registered against the items, location of the property, value of property in same or similar locations, etc.

Questions:

• What is Fair Market Value?
• How is it useful?