Fair Market Value (FMV)
Fair Market Value or FMV is the amount at which a property would sell in the market.
This is a term that is used often in the real estate and tax industry. It is the price of an asset that falls under certain conditions.
The prospective buyers and sellers are:
- Behaving in their own interest
- Reasonably knowledgeable about the asset
- Free of undue pressure to trade
- Given a reasonable amount of time to complete the transaction
With all these conditions, the FMV of the asset should represent the accurate valuation or assessment of its worth.
To explain better, the fair market value of an item is different from the appraised value or market value, as it takes into consideration the economic principles of the open and free market activity. Market value is the price of the asset in the marketplace. So, the market value of a home can be found on a listing, but the FMV is much more harder to determine.
Because the FMV is determined by thorough considerations, it is frequently utilized in legal settings. For instance, the FMV of real estate is used in divorce settlements or to calculate compensation based on the government’s use of eminent domain. Also, FMV is also frequently used in taxation, like when finding the FMV of the property for a tax deduction after a casualty loss.
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