what is fair market value 
fair market value is the price that an asset would sell for under current market conditions assuming that both the buyer and the seller are seeking the best possible price the term is widely used in legal settings where it may be difficult to set an objective value for some assets fair market value fmv is similar to market value the price that the asset would trade for in the open market under current conditions however fair market value has the following additional assumptions given these conditions an asset s fair market value should represent an accurate valuation or assessment of its worth in contrast to its current price these assumptions might make an asset s value higher or lower than its market value this definition of the term is commonly accepted in accounting tax law bankruptcy law divorces and the real estate market investopedia mira norianunderstanding fair market value fmv fair market value is intentionally distinct from similar terms such as market value or appraised value because it considers the economic principles of free and open market activity in contrast the term market value refers to the price of an asset in the marketplace 1 therefore while a home s market value can easily be found on a listing its fair market value is more difficult to determine similarly the term appraised value refers to an asset s value in the opinion of a single appraiser thus not immediately qualifying the appraisal as fair market value 2 however in cases where a fair market value is needed an appraisal will usually suffice due to the thorough considerations used in determining fair market value it s often used in legal settings for example fair market value in real estate is commonly used in divorce settlements and to calculate compensation related to the government s use of eminent domain 34fair market values are also often utilized in taxation such as when determining the fair market value of a property for a tax deduction after a casualty loss 5it s essential to assess the fair market value of an item you buy or sell as it can significantly impact your finances practical uses of fair market valuemunicipal property taxes are often assessed based on the fmv of the owner s property 6 depending on how long the owner has owned the home the difference between the purchase price and the residence s fmv can be substantial professional appraisers use standards guidelines and national and local regulations to determine a home s fmv fmv is also often used in the insurance industry for example when an insurance claim is made due to a car accident the insurance company covering the damage to the owner s vehicle usually covers damages up to the vehicle s fmv 7fair market value and taxationtax authorities nearly always ensure that transactions are realized at fmv at least for tax purposes for example a father who is retiring may sell the shares of his business to his daughter for 1 so that she can carry on as the owner of the family business however suppose the fmv of the shares is higher in that case tax authorities such as the internal revenue service irs may well recharacterize the transaction for tax purposes the father will need to pay taxes on the disposition of the shares as though he had sold them at fmv to a third party 8another field of taxation where fmv regularly comes into play is donating property such as artwork to charities in these cases the donor usually receives a tax credit for the value of the donation tax authorities need to ensure that the credit given is for the actual fmv of the object and often ask donors to provide independent valuations for their donations 9 correctly applying fair market value to taxes ensures there won t be adverse monetary implications later on or any claims of fraud by authorities 