What is Fair Market Value (FMV)?

Short Answer

Fair Market Value (FMV) assumes that a buyer and seller are aware of the facts and that the price in which the property exchanges for is not the result of a forced sale. Note that Fair Market Value is not the same as Fair Value utilized by a banker, bank examiners or accountants.

Definition

According to IRS Regulation §20.2031-1, which is also included in the Dictionary of Real Estate Appraisal, Sixth Edition, published by the Appraisal Institute (Chicago: Appraisal Institute, 2015) Fair Market Value (FMV) is defined as:

“The price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent’s gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate.”

What it Means

Fair Market Value is very similar to market value. In fact, some argue that they are identical. Within the context of appraisal, Fair Market Value generally means that the value established as a result of the appraisal is not a factor of an undue stimulus, both the hypothetical buyer and seller are motivated to a degree comparable to other market participants, and that buyer and seller are aware of publicly known or discoverable facts relating to the subject property, market, comparable properties/opportunities, etc.