A fair market value is often an estimate of what a willing buyer would pay to a willing seller, both in a free market, for an asset or any piece of property. If such a transaction actually occurs, then the actual transaction price is usually the fair market value. Note that the opinion of people that are not interested in buying or selling an asset has little meaning, because they are not active in the market. Thus, "market value" (which is the same for everyone in the market) is not identical to the "intrinsic value" that different individuals may place on the same asset based on their own preferences and circumstances.
However, market transactions are often not observable for assets such as privately-held businesses and most personal and real property. Thus, FMV must be estimated. An estimate of Fair Market Value is usually subjective due to the circumstances of place, time, the existence of comparable precedents, and the evaluation principles of each involved person. Opinions on value are always based upon subjective interpretation of available information at the time of assessment. This is in contrast to an imposed value, in which a legal authority (law, tax regulation, court, etc.) sets an absolute value upon a product or a service.
An example of the relativity of Fair Market Value is when people buy or sell things above or under the price paid locally for similar items. This often happen in auctions, or when people simply don't take third party advice into consideration.
Under this concept, a real estate sale in lieu of an eminent domain taking would not be considered a fair market transaction since one of the parties (i.e., the seller) was under undue pressure to enter into the transaction. Other examples of sales that would not meet the test of fair market value include a liquidation sale, deed in lieu of foreclosure, distressed sale, and similar types of transactions. There is no longer any such value in real estate appraising as Fair Market Value, the correct term is Market value.
Fair Market Value is also a frequent standard of value used in appraising a business or professional practice. The FMV standard of value is presumed to be established by a sufficient number of arms-length transactions conducted in an appropriate secondary market. Careful comparison of the actual selling prices observed in such businesses sale transactions may provide a basis for the Fair Market Value estimation for the subject business.
Business Valuation In Divorce: Does "Fair Market Value" Include Future Potential? By Grover Rutter CPA,, ABV, CVA, BVAL.
Oct 01, 2010; John Wayne said it very well. Tomorrow is the most important thing in life. It comes to us at midnight very clean. It's perfect...