What is fair market value?

Fair market value refers to the price at which a property would sell in a competitive and open market under normal conditions. This value is determined assuming that both the buyer and the seller are willing participants, that neither is under duress, and that they have sufficient knowledge about the property and the market conditions.

The concept of fair market value is essential in various aspects of real estate, such as buying and selling properties, property tax assessments, and appraisal processes. It reflects the true value of the property as agreed upon by informed parties in the absence of external pressures or unusual conditions.

In contrast, the other options do not accurately capture this definition. The highest price a property has ever sold for may be outdated or influenced by specific circumstances that do not reflect current market conditions. The estimated cost of building a new property pertains to construction expenses, which can differ vastly from market value. Similarly, the value determined by the current property owner is subjective and may not represent an accurate picture of what buyers in the market are willing to pay.