What does the term "fair market value" refer to?

The term "fair market value" refers to the price at which property would sell in an open market, where both the buyer and seller are well-informed, willing, and not under any pressure to complete the transaction. This definition emphasizes the idea that the property is being exchanged in a competitive environment, which reflects the actual economic realities of supply and demand. The fair market value takes into account various factors such as market conditions, property location, and comparable sales, allowing for a rational assessment of worth that both parties can agree upon.

This concept is pivotal in property management and evaluation, as it provides a benchmark for pricing, taxation, and dispute resolution concerning property transactions. Understanding fair market value helps stakeholders to make informed decisions regarding buying, selling, or leasing property, ensuring that transactions are equitable and reflective of the current market situation.