How is fair market value defined?

How is fair market value defined?

• A. The value a bank assigns to collateral
• B. The price negotiated between willing buyers and sellers
• C. The assessed value for taxation purposes
• D. The value determined by appraisal alone

Answer: (B)

Fair market value is defined as the price negotiated between willing buyers and sellers in an open market under normal conditions. This definition implies that both parties act in their own self-interest, are well-informed about the relevant facts, and are not under any undue pressure to complete the transaction. This concept is crucial in various contexts, such as real estate transactions, business valuations, and tax assessments, as it establishes a benchmark for the price of an asset based on mutual agreement rather than imposed values or beliefs. Understanding this definition helps recognize that fair market value reflects a genuine agreement in a competitive and open market, serving as a more accurate representation of value compared to other valuation methods, which may depend solely on one party's assessment or specific criteria that do not consider market dynamics.

Fair market value is defined as the price negotiated between willing buyers and sellers in an open market under normal conditions. This definition implies that both parties act in their own self-interest, are well-informed about the relevant facts, and are not under any undue pressure to complete the transaction. This concept is crucial in various contexts, such as real estate transactions, business valuations, and tax assessments, as it establishes a benchmark for the price of an asset based on mutual agreement rather than imposed values or beliefs.

Understanding this definition helps recognize that fair market value reflects a genuine agreement in a competitive and open market, serving as a more accurate representation of value compared to other valuation methods, which may depend solely on one party's assessment or specific criteria that do not consider market dynamics.