Fair market value is the price a willing buyer would pay a willing seller. This assumes neither party is under any pressure to buy or sell. Fair market value is also the artificial price a court will determine a piece of real estate, or interest therein, is worth based on a determination of what the average willing buyer would pay for it if the owner was willing to sell it. As one can imagine, this is very difficult to determine. Fair market value takes into consideration the present use of the property, the highest and best reasonable use, and also any fixtures or machinery that is attached to the land.
Fair market value is generally important in two circumstances:
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.
Fair market value is determined through appraisals. The court will compare the property to be taken to comparable properties which were previously sold in the area. Other factors used by the court to make their decision include:
- The history of economic development in the area
- The proximity of the taken property to other properties with similar uses
- The existence of specific plans for use of the land
- The listing price of the property
- The appraisal value of the property by the government
- The revenue or profit that is coming from comparable properties in the same region
The court will also consider the location, frontage, depth, improvements, and price previously paid for similar parcels.
When the property is being valued, the court cannot speculate on the future value of the land. However, the court will consider specific and concrete plans for the property, which can be proven through evidence such as proof of the recent granting of a zoning variance. Generally, your land will be valued according to its highest and best use. A common example of this is if you have vacant farmland. You will be compensated for the price of what good farmland would bring on the market.
There are various federal, state and local statutes determining at what time the value of the taken property should be used. Most statutes determine the value as the earlier of:
- The date that the condemning authority deposits payment with the court; or
- The date the trial of the issue determining the value of the property commences.
If there are several owners who own the property that is being taken, each owner will receive the fair market value for their interest in the property.
If a condemning authority wants to take your land, a real estate lawyer can explain how the fair market value is determined in your area. A real property attorney also can represent you throughout eminent domain proceedings and help you receive the compensation you are entitled to under the law.