What does 'fair market value' indicate?

Fair market value reflects a price that both a willing buyer and willing seller would agree upon in an open market, where both parties have reasonable knowledge of the relevant facts. This definition embodies the principles of voluntary transactions, meaning there is no undue pressure on either side, and both are acting in their own interests. It ensures that the value is truly reflective of the market dynamics rather than external influences or compulsion.

This concept is vital in various contexts such as real estate transactions, taxation, and legal matters, providing a benchmark for assessing property value based on actual market conditions rather than arbitrary figures or subjective opinions. The emphasis on an "open market" indicates that the valuation is based on fair competition among buyers and sellers, reinforcing the idea that both participants in the market operate with equal information and motivation.