Fair market value is the price that a willing buyer would pay to a willing seller for an asset, assuming both parties have reasonable knowledge of the relevant facts and are not under any undue pressure to complete the transaction.

Characteristics
– Willing Buyer and Seller: Both parties are motivated but not forced to engage in the transaction.
– Market Conditions: Reflects current market conditions and comparable sales.
– Knowledgeable Parties: Both the buyer and seller have access to relevant information about the asset.
– No Pressure: The transaction occurs without any undue stress or urgency.

Examples
– Real Estate: If a home is listed for sale at $300,000 and similar homes in the area have sold for around that price, the fair market value may be considered to be $300,000.
– Business Valuation: A small business generating consistent profits may have a fair market value of $500,000 based on its earnings and comparable sales of similar businesses in the industry.