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Fair Market Value (FMV)

Definition - What does Fair Market Value (FMV) mean?

Fair market value (FMV) is the negotiated price that a willing seller and a willing buyer of a product agree on in order to transfer ownership of the item. In layman’s terms, it is the amount that a consumer is willing to pay for an item. It should be noted, however, that the fair market value also indicates that neither participant is under any compulsion to complete the transaction, and both parties are aware of all the relevant facts related to the sale.

Justipedia explains Fair Market Value (FMV)

Determining fair market value is important when ownership is being passed from one person to another for any reason including donating, gifting, or buying and selling. There are three general means for determining the fair market value:

1. First, consumers selling real estate, equipment or automobiles can determine the fair market value of the asset or product through a comparative market analysis of other similar products.

For example, if you are purchasing a home that is 2,000 sq. feet and you want to determine the fair market value, you will need to review the recent sale price for other comparable properties in the area that have sold in the last year and that are of similar size and age. Other variables to consider include the time on market and the condition of property.

2. Another method to determine the fair market value is to calculate the costs necessary to replace the item. Finally, fair market value may be determined by the income-analysis method, which is used for commercial buildings or large multi-unit residential properties that can be rented.

3. Professional, licensed appraisers may also have tools and expertise to provide additional information about the fair market value of an asset, property or product. For example, if you decide to hire an appraiser to value a home, they will generally review the condition of the house, perform a physical inspection of the property, and identify any maintenance issues.

Appraisers can also be hired to determine the fair market value for other products, including cars, antiques, paintings and jewelry.

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