What is Fair Market Value?

Fair market value is the price at which a willing seller sells a good or service to a willing buyer.

Example of Fair Market Value

Let's assume John Doe wants to sell his house. He lists it for $750,000. Jane Dale wants to buy a house. She sees John's house for sale and offers him $675,000. The two negotiate the price and agree on $700,000. Because it is the price John and Jane agree to, the fair market value of the house is $700,000.

Why does Fair Market Value matter?

People often feel that houses, art, stocks, bonds and other items are 'worth' a certain amount on the market, but the only true measure of worth -- the fair market value -- is the price at which someone is willing to sell and someone is willing to buy.