Fair Market Value
IntermediateFair market value is the price at which an asset would change hands between a willing buyer and a willing seller, when both have reasonable knowledge of the relevant facts and neither is under pressure to buy or sell.
Fair market value is a standard of value used widely in tax, legal and valuation work. It aims to describe a hypothetical, fair transaction, not a forced sale or an unusually favourable deal.
For example, a house that would normally sell for 350,000 in an ordinary sale has a fair market value of around 350,000. If the owner had to sell it within a week to cover debts and accepted 300,000, that price would not reflect fair market value.
Fair market value is often used to calculate taxes, such as taxes on gifts or inheritances, to settle legal disputes such as divorces, and to value assets in estates or business transactions between related parties.
The exact legal definition can vary by country and purpose. It is similar to, but not always the same as, fair value under accounting standards, which is defined as the price that would be received to sell an asset in an orderly transaction between market participants. Professional valuers apply these definitions carefully depending on the purpose of the valuation.
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