Fair Market Value (FMV) is defined as the price that a seller is willing to accept for a property and a buyer is willing to pay in an open and competitive market, both parties having reasonable knowledge of the relevant facts and acting without undue pressure. This definition underscores the voluntary nature of transactions in a free market, where both buyer and seller have agreed on a price that reflects the property's value based on current market conditions.
The concept of Fair Market Value plays a critical role in real estate transactions, taxation, and legal contexts, as it represents a fair assessment of what the property is worth at a given time, considering the conditions of the market. This valuation method ensures that transactions are equitable and reflective of actual market dynamics, rather than arbitrary pricing or formal valuations set by external entities.
Understanding FMV is essential for real estate professionals and mortgage loan originators, as it influences the pricing strategies of properties, investment decisions, and financing options. It also helps in assessing whether a property is being sold at a reasonable price based on its attributes and the surrounding market context.