Fair Market Value (FMV)

A Fair Market Value (FMV) is a valuation standard that represents the price at which assets or services asset would be exchanged between willing buyers and willing sellers in an open market under arm's length conditions.

• AKA: Full and Fair Cash Value (FFCV), Market Value.
• Context:
  • It can typically represent the price at which a property would change hands between a willing buyer and a willing seller, neither being under compulsion to buy or sell.
  • It can often be used to determine the value of assets for taxation, insurance, and legal proceedings.
  • It can typically require both buyers and sellers to have reasonable knowledge of relevant facts about the asset.
  • It can ensure price objectivity by reflecting supply-demand equilibrium in unrestricted markets.
  • It can be applied in tax assessments, insurance claims, mergers, and divorce settlements to determine equitable value.
  • It can range from being a Simple FMV (e.g., used car valuation) to being a Complex FMV (e.g., intangible asset valuation), depending on asset complexity.
  • It can require independent appraisals to eliminate bias and comply with regulatory frameworks like IRS Publication 561.
  • It can differ from book value due to market fluctuations or depreciation methods.
  • It can often be determined through comparative market analysis, professional appraisals, or actual sales of similar assets.
  • It can typically exclude transactions under duress or forced sales from its calculation.
  • It can often be used in financial reporting, mergers and acquisitions, and charitable donation valuations.
  • It can range from being Objective to being Subjective, depending on the availability of market data and comparable sales.
  • It can typically fluctuate based on market conditions, economic factors, and asset-specific characteristics.
  • It can often be different from intrinsic value, or liquidation value of an asset.
  • ...
• Examples:
  • Real Estate FMVs, such as:
    • Residential Property Appraisal, based on comparable sales in suburban neighborhoods.
  • Business Valuations, such as:
    • Tech Startup Acquisition FMV, calculated using discounted cash flow models.
  • Tax-Related FMVs, such as:
    • Charitable Donation Valuation, requiring IRS-compliant appraisals for non-cash donations.
  • ...
• Counter-Examples:
  • Book Value, which derives from accounting records rather than market-driven assessments.
  • Forced Sale Value, determined under liquidation pressure instead of voluntary transactions.
  • Insider Trading Prices, influenced by non-public information rather than open market dynamics.
  • Intrinsic Value, which is based on fundamental analysis rather than market prices.
  • Liquidation Value, which represents the value of assets in a forced sale scenario.
• See: Appraisal, Asset Valuation, Tax Assessment, Arm's Length Transaction, Insurance Adjustment, Regulatory Compliance, Economic Equilibrium, Market Price, Open Market].

---

---

References

2025a

• (Wikipedia, 2025) ⇒ https://en.wikipedia.org/wiki/Fair_market_value Retrieved:2025-2-19.
  • The fair market value of property is the price at which it would change hands between a willing and informed buyer and seller. The term is used throughout the Internal Revenue Code, as well as in bankruptcy laws, in many state laws, and by several regulatory bodies. In litigation in many jurisdictions in the United States the fair market value is determined at a hearing. In certain jurisdictions, the courts are required to hold fair market hearings, even if the borrowers or the loans guarantors waived their rights to such a hearing in the loan documents. FMV is often used for taxation purposes, determining the value of charitable donations, estate planning, and other financial transactions. The specific methods used to determine FMV may vary depending on the type of property or asset involved.

    Fair market value is subjective and can fluctuate based on market conditions, supply and demand, location, and other factors.

2025b

• (Wikipedia, 2025) ⇒ https://en.wikipedia.org/wiki/Market_value Retrieved:2025-2-19.
  • Market value or OMV (Open Market Valuation) is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and differ in some circumstances.

2024

• (Warren, 2024) ⇒ Kristoffer Warren (2024). "What is a 409A Valuation?". In: Carta Blog.
  • QUOTE: A 409A valuation is an independent appraisal of the fair market value (FMV) of a private company’s common stock on the date of issuance. A 409A valuation is used to set the strike price for stock options issued to employees. Appraisers try to determine what a company’s shares would sell for in an ideal market where buyers and sellers possess the same information about a company and its finances .

2023a

• (IRS, 2023) ⇒ Internal Revenue Service. (2023). "Determining Fair Market Value of Donated Property". In: IRS Publications.
  • QUOTE: Fair Market Value is the price at which property would change hands between a willing buyer and a willing seller, neither being under compulsion to buy or sell and both having reasonable knowledge of relevant facts.

    For tax deductions, donors must substantiate FMV with qualified appraisals, especially for high-value items like artwork or real estate.

    Market comparisons and replacement costs are key valuation methods under IRS guidelines.

2023b

• (Wallstreetprep, 2023) ⇒ Wallstreetprep (2023). "Fair Market Value (FMV) | Definition + Property Example". In: Wall Street Prep.
  • QUOTE: Fair Market Value (FMV) refers to the current price that interested buyers in the open markets are willing to pay to purchase a certain asset, such as property.

    The fair market value (FMV) is the price set by the open market at which an asset could be sold (or purchased).

    Since investors and buyers in the open markets are emotional decision-makers with cognitive biases, the fair value of assets fluctuates constantly.

    The fair value of an asset is the price it'll sell for in an open, competitive market whereby the seller and buyers all have adequate information with no external factors like time impacting their decision-making.

2022a

• (OECD, 2022) ⇒ Organisation for Economic Co-operation and Development. (2022). "Transfer Pricing Guidelines". In: OECD Reports.
  • QUOTE: The arm's length principle ensures FMV aligns with market conditions between independent entities, preventing profit shifting via non-market prices.

    Multinational enterprises must document transfer pricing using comparable uncontrolled transactions or economic models like the transactional net margin method.

    Deviations from OECD standards may lead to double taxation or penalties.

2022b

• (Masterclass, 2022) ⇒ Masterclass (2022). "What Is Fair Market Value? How to Calculate the FMV of a Home". In: Masterclass.
  • QUOTE: The fair market value of a house is a result of a combination of factors including appraisal value, market price, and similar homes in the area.

    For example, if a seller lists a home for $350,000, and an interested buyer offers $300,000, and the buyer and seller negotiate and agree on the purchase price of $310,000, that is the fair market value.

2021a

• (Rho, 2021) ⇒ Rho (2021). "What is fair market value (FMV) in business?". In: Rho Blog.
  • QUOTE: The most common way to determine fair market value is to compare what similar businesses, properties, or equipment sell for on the open market.

    Fair market value is what a property or business is worth based on comparable properties or businesses, not what a buyer is willing to pay.

    No one person calculates fair market value. The economic conditions of free and open market activity determine it.

2021b

• (Smith & Alvarez, 2021) ⇒ T. Smith, and L. Alvarez. (2021). "Fair Market Value in Divorce Settlements". In: Journal of Asset Valuation.
  • QUOTE: FMV in divorce proceedings often involves valuing marital assets such as family businesses or retirement accounts.

    Courts prioritize neutral appraisals to ensure equitable distribution, rejecting sentimental value or speculative projections.

    Disputes arise when spouses use conflicting valuation approaches (e.g., liquidation value vs. going concern value).

2020

• (Nguyen et al., 2020) ⇒ M. Nguyen, R. Gupta, and S. Kim. (2020). "Valuing Intangible Assets Under FMV Standards". In: Financial Valuation Review.
  • QUOTE: Intangible assets like patents or brand recognition require specialized FMV methods such as relief-from-royalty or excess earnings models.

    Market participant assumptions must reflect hypothetical transactions, excluding entity-specific synergys.

    Failure to adhere to FMV principles may result in audit disputes or financial misstatements.

2018

• (ISA, 2018) ⇒ International Society of Appraisers (2018). "Defining Fair Market Value". In: ISA Blog.
  • QUOTE: Fair market value is defined in Treasury Regulation §1.170A-1(c)(2) as, "The price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts." Treasury Regulation §20.2031-1(b) expands upon this definition, "The fair market value... is not to be determined by a forced sale nor is the fair market value of an item to be determined by a sale within a marketplace other than that in which the item would be most commonly sold to the public, taking into consideration the location of the item wherever appropriate."

2008

• (MA DoR, 2008) ⇒ Massachussets DoR. (2008). “Municipal Finance Glossary.” Massachussets Department of Revenue - Division of Local Services
  • QUOTE: Full and Fair Cash Value (FFCV) – Fair cash value has been defined by the Massachusetts Supreme Judicial Court as “fair market value", which is the price an owner willing but not under compulsion to sell ought to receive from one willing but not under compulsion to buy. It means the highest price that a normal purchaser not under peculiar compulsion will pay at the time, and cannot exceed the sum that the owner after reasonable effort could obtain for his property. A valuation limited to what the property is worth to the purchaser is not market value. The fair cash value is the value the property would have on January first of any taxable year in the hands of any owner, including the present owner. “ (Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956))

---