Fair Market Value (FMV) is the estimated price at which a property would change hands between a willing buyer and a willing seller, both fully informed and acting without undue pressure or special relationships. It reflects objective market conditions rather than distressed or forced-sale scenarios.
Both buyer and seller act willingly, with full access to relevant information (e.g., condition reports, market trends).
No special relationships or undue influence skew the deal—each side pursues its own best interest.
Multiple buyers and sellers interact in an open marketplace, ensuring supply and demand dynamics set the price.
Market price is the actual transaction amount. FMV is an estimate of what should occur under ideal conditions; temporary market shifts can cause variance.
An appraiser’s estimate of FMV based on standardized methods; lenders use appraised value to validate loan amounts.
Assessor’s valuation for tax purposes, often lagging behind real‐time FMV and subject to statutory adjustments.
Examines recent sales of similar properties (“comps”), adjusting for differences in size, amenities and location to derive FMV.
Calculates the cost to rebuild the property (reproduction) or replace it with a similar function (replacement), minus depreciation, plus land value.
Estimates FMV by capitalizing net operating income (NOI) using market‐derived capitalization rates.
Proximity to amenities, school districts, zoning restrictions and local development plans shape demand and value.
Well‐maintained homes with modern upgrades command higher FMV; deferred maintenance reduces value.
Inventory levels, buyer interest and market cycles (buyer’s vs. seller’s market) directly affect FMV.
Low interest rates and strong job markets boost buying power and FMV; economic downturns can suppress values.
Accurate FMV guides first‐timers in making competitive offers and realistic listing decisions.
Investors compare FMV to purchase price, renovation costs and projected income to assess profitability.
FMV influences market rent levels, lease terms and tenant improvement allowances.
Loan approvals, interest rates and required equity depend on an appraisal‐validated FMV.
FMV provides an impartial basis for asset division in divorces, estate planning and litigation.
Examine the chosen comps, adjustment rationale and market trend analysis in a Comparative Market Analysis.
If you suspect an inaccurate appraisal, request a second appraisal or appeal through your lender’s review process.
Submit additional comps, recent upgrades documentation and market data to support a higher FMV.
An arm’s‐length sale occurs between unrelated, independent parties negotiating at market terms without pressure or special relationships.
Automated valuations offer a ballpark figure but lack nuance—only a licensed appraiser or detailed CMA can produce a reliable FMV.
Review FMV annually or whenever you plan to sell, refinance, appeal taxes or make significant property changes.
You can renegotiate price, increase your down payment or challenge the appraisal with supplemental data.
Higher FMV increases assessed values and annual taxes; capital gains tax liability is based on the difference between FMV (or purchase price) and sale price.
Fair Market Value underpins pricing, financing, taxation and legal settlements by providing an impartial, market‐driven estimate of property worth.
