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The Divorce Encyclopedia
Fair Market Value

Term Definition Fair Market Value - the price a willing buyer pays a willing sell after an armís length negotiation.
Application in Divorce The fair market value is the most literal application of the theory of value: something is worth what someone will pay for it.

A fair market value is the price a couple would pay buying a home from a third party on the open market. Fair market value is not a fire sale or distress price or a sale between members of a family, where special consideration may lower the price.

Fair market value also is a price determined in competition with similar properties near it after a reasonable time on the market. In theory, when a property of the market at a certain price does not sell after a reasonable length of time, the asking price is above the fair market price.

In divorce actions, sometimes other considerations influence the price of real estate transactions between divorcing spouses, and spouses will accept an appraisal by a third party as the value of the family home.

Run-ups in the value of housing -- bubbles, as they are called -- may create a collective buying hysteria whereby buyers purchase homes only to find the market for them rapidly slipping. In the extreme, owners then find themselves with mortgages higher than the fair market value of their homes. This is called negative equity.

The replacement value of a house is generally greater than the fair market value.

See Fair Value. Compare Replacement Value.

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