Fair Market Value (FMV)

What is Fair Market Value?

Fair Market Value (FMV) meaning can be referred to as the price for which the given asset would sell in the Open Market. Fair Market Value aims at representing the overall price of the asset under the given set of conditions:

• Potential buyers & sellers tend to be reasonably knowledgeable about the particular asset
• The buyers & sellers tend to behave in their respective best interests
• They are free of undue pressure while trading
• They are given relevant time period for ensuring the completion of the particular transaction

Under the specific conditions, the Fair Market Value of the particular asset is known to represent some accurate valuation or its worth’s assessment. The given term is typically utilized in the Real Estate markets and the field of tax law.

Getting an Understanding of FMV (Fair Market Value)

As per the Fair Market Value meaning, it serves to be quite distinct from other similar terms in the field of Economics –including market value, appraised value, and so more. This is because it is known to consider the economic principles of both open & free market activity. On the other hand, the term market value is known to refer to the asset’s price in the given marketplace. Therefore, while you can come across the market value of the home on a listing easily, FMV serves to be more difficult when it comes to determination.

At the same time, the term appraised value is used to refer to the value of the asset as per the opinion of a single appraiser. However, in cases wherein there is the requirement of Fair Market Value, the appraisal is mostly known to suffice.

Due to the in-depth considerations that are made by Fair Market Value, it is also being utilized in the legal sector. For instance, when Fair Market Value is utilized in the real estate market, it is commonly used in the fields of divorce settlements along with the calculation of compensation in relation to the utilization of Eminent Domain by the government.

Fair Market Value is also mostly known to be utilized in the field of taxation. For instance, it can be used for determining the Fair Market Value of a particular property for ensuring tax deductions after some casualty loss.

Fair Market Value & Taxation

Tax authorities all around the world always make sure that the respective transactions are correlated with the Fair Market Value –for tax purposes at its least. Another important field of taxation in which Fair Market Value might find its application is with respect to the property’s donation –like some artwork to charity organizations. In the given case, the donor is mostly known to receive the tax credit for the donation’s value. Tax authorities are required to make sure that the credit provided is for the true Fair Market Value of the given project while asking the donors to offer independent valuations for the respective donations.