Definition: What Is a Fair Market Value?
The term “fair market value” refers to a value that’s mutually agreed upon within a market.
This is a number used to estimate a value for which an asset may be transacted.
An important part of establishing a fair market value is determining the ground rules within the market.
This is often done through comparing purchase prices of similar assets such as comparable properties in the real estate markets.
Advantages and Benefits of Fair Market Value
The fair market value is a good filtering tool.
Image Source: What Is a Fair Market Value?
When looking through numerous potential investments, investors can decipher which are worthwhile prospects based on the expected price in comparison to their fair market value.
After establishing which deals appear ideal, the investor can then dig further to determine which make sense when factoring in all the technical information.
Additional Information on Fair Market Value
While establishing a fair market value can be beneficial, it should not be considered 100% accurate.
A fair market value does not identify the amount that an individual will actually pay for any particular asset. Instead, it offers an assumed estimate on an asset based on what it appears that others pay for this asset.
Also, keep in mind that every asset class has distinctions within it, so it’s difficult to establish an accurately uniform number to all of the comparable assets within a class.
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