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Determining Fair Market Value

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What Is Fair Market Value?

Fair market value is the artificial price a court will say some real estate, or interest therein, is worth. Generally, this is decided by asking: "What would a willing and able buyer pay a willing and able seller for that particular piece of property?" This is actually a very difficult question to answer.

Why Is Fair Market Value Important?

Fair market value is generally important in two circumstances:

  1. Eminent Domain or inverse condemnation proceedings
  2. Purchase and sale of a home

Fair market value can greatly influence the amount of compensation the owner of a seized property or the owner of property up for sale can receive. Generally, the current owner of the real estate wants to show the fair market value is as high as possible so they can maximize the benefit they will receive.  On the other hand, either the government or purchaser of the real estate will try to show the fair market value is as low as possible so they can minimize their losses.

How Can I Determine Fair Market Value?

Fair market value is a very difficult thing to establish. Due to the high level of speculation that accompanies the fair market value of real estate, a court will be willing to consider any of the following to determine the fair market value:

Witness Testimony

The opinion of a witness is the most relevant factor in a court's determining process of the fair market value of real estate. In order to consider a witness' testimony, that witness must:

  1. Be qualified to express their opinions,
  2. Have knowledge that they can reasonably rely on in making their opinion.

Comparable Sales

The price and terms of the sale of a similar home can usually be used in determining the fair market value of real estate. Both documentation of comparable sales and a witness' knowledge of comparable sales can be used. In order to be considered, the comparable sale must be:

  • Close in time and date from the current dispute
  • Located near the property being valued
  • Sufficiently similar in character, size, situation, and usability to the property being valued

Lease Agreements

A witness can use their knowledge of, or documents can be produced to show any lease agreements regarding the property being valued. In a court's decision, it will look at such things as:

  • Rent payments,
  • Terms of the lease, and
  • When the lease was drafted and entered into.

What Evidence Cannot Be Used to Determine Fair Market Value?

Generally, a court will not consider any of the following in making its decision on what the fair market value of real estate should be:

  • Price or terms in the sale of the property for public use,
  • The offering price of the property,
  • The listing price of the property,
  • The assessed value of the property for government taxes, and
  • The revenue or profit coming from the property or comparable properties,

Do I Need an Attorney to Help in my Fair Market Value Dispute?

If you find yourself in an eminent domain or inverse condemnation proceeding and the fair market value of your property is in question, it is highly recommended that you contact a property or real estate attorney. If you are considering purchasing or selling some real estate and the fair market value of that real estate is at issue, it is a good idea to consult with an attorney. Only an attorney will be able to explain the relevant issues and help protect your interests regarding the real estate being valued.

Photo of page author Peter Clarke

, LegalMatch Content Manager

Last Modified: 01-28-2014 12:15 PM PST

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