Fair Market Value

The fair market value of a property is the price which a buyer and a seller agree upon.  In order for it to be considered fair market value, neither the buyer nor the seller can be pressured for the transaction to take place and the transaction must take place at arm’s length.  Arm’s length means that the transaction should occur so that both parties have something to gain and the business should be conducted as if there was no personal relation between buyer and seller.  So that means that if a buyer wants a house so badly that he or she is willing to purchase a property for $500,000 and it is appraised at $200,000, that is considered fair market value because the buyers gains his or her dream home and the seller gains a sizeable profit.  Similarly, if a seller wants to sell a $200,000 for $50,000, in order to pay off debts, that is considered fair market value because the buyer gets to buy the home for a great deal less than it is worth and the seller gets to repay his or her debts.  In short, if both buyer and seller agree to a price, that is the fair market value.

Fair market value can be determined by what comparable homes are selling for in the surrounding area.  For instance, a property may seem more valuable because of nearby amenities.  So, if a property is near a park, zoned for good schools or is within walking distance to a public transportation system, that might encourage a seller to ask more for a home and it might entice the buyer to agree.