What is Fair Market Value?
Fair market value is the price that a buyer and seller agree to for a given asset or property. In real estate, the fair market value is immediately established when there is a firm sale price on a property.
In instances where a sale is not taking place, fair market value may be determined through an independent evaluation process. A third party, usually an appraiser, will consider the property’s location, size, and condition, along with any recent comparable sales in the area, to establish a competitive price that someone would be willing to pay for the property in the open market.
Why is this term important?
Fair market value is important because it provides a standard for determining the value of a property and helps ensure that buyers and sellers are transacting on a fair and equitable basis.
Fair market values are used by service providers including mortgage lenders, when approving a loan application, and insurance companies, to determine the replacement cost of a property in the event of damage or loss.
Here is an example:
We use a property’s fair market value in the event that a co-owner chooses to buy out Our share of the home. As the home is not being sold in the open market, Hany Adam Homes and the co-owner will use an independent appraisal process to determine the fair market value. This value is then used in lieu of a sale price to calculate the value of Our ownership share, and therefore the co-owner’s cost to buy out Our share.
