Fair Market Value

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What is 'Fair Market Value'

Fair market value is the price that a given property or asset would fetch in the marketplace, subject to the following conditions:

1. Prospective buyers and sellers are reasonably knowledgeable about the asset; they are behaving in their own best interests and are free of undue pressure to trade.

2. A reasonable time period is given for the transaction to be completed.

Given these conditions, an asset's fair market value should represent an accurate valuation or assessment of its worth.

BREAKING DOWN 'Fair Market Value'

Fair market values are widely used across many areas of commerce. For example, municipal property taxes are often assessed based on the fair market value of the owner's property. Depending upon how many years the owner has owned the home, the difference between the purchase price and the residence's fair market value can be substantial.

Fair market values are often used in the insurance industry as well. For example, when an insurance claim is made as a result of a car accident, the insurance company covering the damage to the owner's vehicle will usually cover damages up to the fair market value of the automobile.

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