Fair Market Value (FMV)
Fair Market Value (FMV) fair market value is the price at which property would change hands between a willing buyer and a willing seller under normal market conditions.
This standard provides an objective measure of an asset's value, considering reasonable knowledge and no compulsion to transact.
| Category | General |
| Related |
How Fair Market Value Works
Fair market value represents a hypothetical transaction where neither party is under pressure to buy or sell. It assumes both parties have reasonable knowledge of the relevant facts and are acting in their own best interests.
Valuation professionals typically use three primary approaches to determine FMV: the income approach, the market approach, and the asset approach. Each method provides insights into the potential value of a business or asset.
The concept is critical in various contexts, including tax planning, employee stock compensation, buy-sell agreements, and charitable contributions.
Key Points
- •Requires willing buyer and seller with no compulsion
- •Considers a specific valuation date snapshot
- •Involves professional judgment and multiple valuation approaches
- •Used across legal, financial, and tax-related scenarios
- •Differs from actual transaction value or strategic buyer value
Frequently Asked Questions
Related M&A Concepts
Fair Value
An accounting and valuation concept representing the price of an asset in an orderly transaction.
Learn moreStandard of Value
A specific definition of value used in a business valuation, establishing the fundamental premise of measurement.
Learn moreIntrinsic Value
The perceived true value of an asset based on fundamental financial metrics and potential.
Learn moreStay Informed
Stay up to date on M&A insights and market trends.