Definition

• Fair market value is the price at which goods or services would trade between a willing seller and a willing buyer who are both aware of all relevant facts about the goods or services and the transaction; assuming both buyer and seller are reasonable.
  
  

Explanation

• Fair value is also known as fair market value, which is the approximate price for which one can reasonably expect to sell something, or the price one could expect to pay to buy something.
  
  

Uses

• Fair value is generally not used in standard retail transactions were identical goods or services can be both supplied and purchased on an ongoing basis.
  Fair value is most often used when dealing with property. The type of property can take many forms: it can be real property which would be land or a home, personal property such as stocks and bonds or a vehicle. Personal property would also include intangible property like ownership of a copyright.
  
  

Determining Fair Value

• Fair value can be determined in many ways. For example, the fair value of a house can be established by comparing your house to other comparable houses that have sold in your area. Another method for assessing fair value would be to use the value as determined by your local assessor's office. For personal property, the value that is assessed for taxes, the "blue book" value for cars, and the local classifieds can all be used to estimate the fair value.
  
  

Difficulties

• Assessing fair value can be complicated depending upon the type of property involved. The intrinsic value of a property, appreciation or depreciation and the current and future return on an investment each could be relevant when assessing fair value. It also can be difficult to determine the value of partial property interests such as having a fractional interest in a family home. In the latter case, it can be argued that the fair market value is "0" because it is unreasonable to expect the seller to find a buyer willing to purchase a partial interest; however, an expert in property valuation may have a sound methodology to determine a value of a partial property interest.