The fair market value sometimes referred to as FMV is the equilibrium price at which an asset would change hands between a buyer and seller. If the asset is too expensive, buyers may avoid it and it won’t be sold and if it is underpriced the seller wouldn’t have a good incentive to sell.
It is a term commonly used in the world of real estate, in which the asset is a house, condo, or apartment. In addition to real estate, fair market value is also commonly used by the IRS, in bankruptcy law, as well as state laws and regulations. Typically bankruptcies, insurance claims, and mortgage applications require the fair market value of the individual’s asset or assets.
There are a few different ways to calculate the fair market value of property besides selling it. The sale of similarly sized homes in the vicinity may be used to calculate the value of a property. Alternatively, an expert opinion can also be used. A certified property appraiser may help assess the value of a property. The only catch is that different appraisers could make different assessments on the same property.
The definition of fair market value may change slightly from country to country. Canada for example has a different definition of fair market value than their American counterparts. In Canada, the fair market value is defined as “the highest price offered” while in the US it is defined as “the price”. This slight semantic change could potentially affect the fair market value of an asset.