What is meant by fair market value?

Fair market value refers to the price that a buyer is willing to pay for a property in a transaction where both the buyer and seller have reasonable knowledge of the relevant facts and are acting in their own best interests, without any pressure or duress. This definition signifies a transaction that occurs under normal market conditions, reflecting true value rather than an inflated or deflated price influenced by external factors.

In this context, the notion of a "free transaction" emphasizes that the selling price is derived without coercion, allowing for an authentic negotiation process. Buyers will typically base their willingness to pay on market conditions, comparable sales, and the perceived value of the property to them, which aligns closely with the established definition of fair market value.

Understanding fair market value is crucial for architects and differentiates it from other assessments of value, such as those performed by tax authorities, which may not reflect current market conditions or the true selling price an informed buyer would agree upon.