Fair Market Value
The price at which property would change hands between a willing buyer and a willing seller, neither under compulsion and both with reasonable knowledge of relevant facts. The standard of value used by the IRS and in many legal contexts.
Fair market value and the appraisal-industry definition of market value are close cousins but come from different sources: fair market value is defined in tax regulations and case law (notably for estate, gift, and charitable-donation purposes), while market value definitions used in lending come from federal banking regulation. The practical differences are usually small for residential property, but the report must state and apply the definition that matches the intended use — an estate appraisal for IRS purposes should value to the fair market value standard as of the date of death.
Related Terms
Market Value
The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus..
Retrospective Appraisal
An appraisal with an effective date in the past.
Appraisal
The act or process of developing an opinion of value for a property, performed by a licensed or certified appraiser following recognized methods and professional standards.
More in Legal & Regulatory
View allUniform Standards of Professional Appraisal Practice (USPAP)
USPAPThe nationally recognized ethical and performance standards for the appraisal profession, established by The Appraisal Foundation.
FIRREA (Financial Institutions Reform, Recovery, and Enforcement Act)
FIRREAThe 1989 federal law that established the modern appraisal regulatory framework, requiring state licensing of appraisers and USPAP compliance for all federally related real estate transactions..
Dodd-Frank Act (Appraisal Provisions)
The 2010 federal financial reform law that included significant appraisal provisions: appraiser independence requirements, AMC registration, customary and reasonable fee mandates, and prohibition of BPOs for origination..
Appraiser Independence
The legal requirement that appraisers must be free from improper influence, coercion, or pressure from parties with a financial interest in the transaction outcome.