Fair market value (FMV) is a fundamental concept in finance, taxation, and various other fields that involves the determination of the fair and reasonable price an asset would command in an open and competitive market. It represents the hypothetical price at which a willing and knowledgeable buyer and seller would agree to transact, assuming both parties are acting in their best interests and free from any external pressures.
Fair market value (FMV) is the estimated price that a specific asset would fetch on the open market when sold between a willing buyer and a willing seller, both of whom are reasonably knowledgeable about the asset, acting in their own best interests, and free of undue pressure to buy or sell. In essence, FMV represents the objective and impartial value of an asset based on market conditions and informed, voluntary transactions.
FMV is an essential concept in various domains, including finance, taxation, real estate, insurance, and legal proceedings. It is used for a wide range of purposes, such as determining the value of property for tax assessment, calculating insurance claim payouts, establishing the purchase price in mergers and acquisitions, and assessing the worth of assets during divorce settlements.
The uses of fair market value:
The examples of fair market value are:
3 approaches for fair market value valuation are as follows:
Scenarios in which FMV plays a crucial role:
Here are some common methods and factors to consider when calculating FMV for different types of assets:
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