Kovats Real Estate School Practice Test 2025 - Free Real Estate Practice Questions and Study Guide

The term "fair market value" refers to the amount a property would sell for on the open market, where both buyer and seller are typically motivated, informed, and acting in their own best interests. This concept is grounded in economic principles of supply and demand, meaning that the fair market value is influenced by market conditions and comparable property sales. It provides a realistic measure of a property's worth based on what buyers are willing to pay and what sellers are willing to accept under normal market conditions.

In contrast, the appraised value set by a local assessor often reflects a property's value for tax purposes and may not necessarily represent current market conditions. Similarly, the tax value determined by state law may use valuation formulas or criteria that do not align with actual market dynamics. Lastly, the price a property owner is willing to sell for can be influenced by emotional factors or personal circumstances, which may not accurately represent the true fair market value of the property. Thus, fair market value is specifically tied to the nature of transactions in an open market rather than external assessments or individual motivations.