What constitutes "fair market value" for a property?

Fair market value is defined as the price that a willing buyer would pay to a willing seller in an open market, assuming that both parties are knowledgeable about the property and are not under any pressure to buy or sell. This definition is fundamental in real estate transactions as it reflects the true economic value of a property based on what it could realistically sell for under typical market conditions.

This concept emphasizes the voluntary nature of the transaction, where both buyer and seller are motivated to engage in the sale without external constraint, such as urgency or coercion. It considers the current market conditions, the property's features, and location, as well as buyer demand and seller supply dynamics.

Other options do not accurately capture the essence of fair market value. The estimated cost of construction pertains to the expense incurred to build a property, which may not reflect its market value. A price set by a real estate agent might be influenced by their opinion and marketing strategies but does not necessarily represent what buyers and sellers in the market would agree upon. Lastly, while appraisal services can provide a professional estimate of value, the appraisal itself may not always align with what actual buyers and sellers are willing to pay in an actual transaction.