Glossary of Terms
Fair market value is the price a property would reasonably sell for in an open, competitive market, where both buyer and seller are informed, willing and under no pressure to act. It is one of the most foundational concepts in real estate valuation and lending.
In appraisal practice, fair market value guides how appraisers analyze comparable sales, reconcile value indicators and support their final opinion of value. It assumes normal market exposure, typical financing and a transaction free from undue influence or special circumstances.
Lenders rely on fair market value to determine appropriate loan amounts and assess collateral risk. When significant gaps emerge between contract price and appraised value, transactions may require renegotiation, additional documentation or a formal reconsideration of value before closing can proceed.