What is

“FAIR MARKET VALUE” ?

A couple experiencing a job transfer from the Midwest to Virginia agrees to accept $7,900 less than "fair market value" for their home. A small rural church congregation agrees to pay $1,500 per acre more than "fair market value" for five acres of land adjoining the existing church property.

What is happening in those two examples?

Fair market value has been defined as:

"That price, at which a seller is willing to sell and a buyer is willing to buy, both parties being knowledgeable about the property and neither party being under any time pressure to act".

Because buyers and sellers each have different motivations for their actions, however,prices paid and accepted for real estate can and do vary dramatically

 from the so-called norm of "fair market value".

Consider the couple moving to Virginia . Time pressure affected the price they were willing to accept. The husband was offered a promotion if he was

willing to move. The couple weighed the possibility of eventually receiving a higher price for their home against accepting a lower offer which allowed them to

move quickly. The new job won out, resulting in a final sale price lower than "fair market value".

What about the church that paid a $1,5.00 per acre premium for the land? Another factor, supply and demand, influenced their decision. The land

adjoined their existing church property. They wanted it for a picnic and fellowship area for church members. Land located two miles away would not have been suitable for their purpose. Because the supply {land adjoining church property) was in limited supply, they agreed to pay the higher price.

While a theoretical "fair market value" exists for all properties, real life dictates that there will be many deviations from that price level.

 When there is such a deviation, it is also interesting to note that both buyers and sellers can experience a "win" .The couple who accepted a lower price was satisfied because they were free to move.

 The church paying a higher price felt good that their congregation would benefit from the adjoining land.

Fair market value price is affected by

Exceptionable circumstances. An unusually high or low price can and does occasionally happen, but it not the norm. A CMA will tell you the norm if there are no unusual circumstances. Only one of a kind or limited supply situations put prices way out of the ball park. It is rare when dealing with a normal home. A common example of limited supply situations would be Commercial property

Or waterfront property. They aren’t making anymore waterfront.

By Steve Myers

 All articles are for educational purposes only and are not meant as tax or legal advice! See a CPA for tax advice or an attorney for legal advice, or any other appropriate professional for the sector!