What does "fair market value" refer to in property appraisal?

"Fair market value" refers to the price that a willing buyer and seller would agree upon in an open and competitive market, provided both parties are informed and not under any undue pressure. This is a crucial concept in property appraisal as it reflects the true worth of a property based on current market conditions rather than arbitrary figures set by authorities or influenced by other factors.

This definition emphasizes the need for both parties to be knowledgeable about the property and the market, allowing them to come to a consensus that accurately represents what the property should fetch if sold. This principle is foundational in real estate transactions and legal contexts, such as eminent domain and tax assessments, where determining a fair compensation is essential.

In contrast to this definition, merely averaging the prices of similar properties does not account for unique characteristics or market circumstances that could influence pricing. The price set by a property tax assessor often serves different purposes and may not reflect true market conditions. Similarly, while real estate appraisers utilize various methods to arrive at a value, their determinations are often based on professional judgment and may still align with the fair market value but not define it outright. Overall, the essence of "fair market value" lies in the mutual agreement between buyers and sellers in an open market scenario.