How is fair market value best defined?

Fair market value is best defined as the price that a willing buyer would pay to a willing seller in an open market. This concept is fundamental in real estate and property valuation, as it reflects the dynamics of a free market without any coercion.

In a fair transaction, both parties are motivated but not forced, ensuring that the price is determined by current market conditions and reflects what similar properties would fetch. The term embodies the principle of voluntary exchange, whereby both the buyer and seller agree on a price based on their respective interests and the value they perceive.

This definition contrasts with the other choices, which do not accurately capture the essence of fair market value. For instance, setting a price by the seller regardless of buyer interest does not take into account market demand and willingness, which are crucial for determining fair value. Similarly, referencing a previous purchase price or an appraiser's estimated value devoid of current market conditions could lead to a skewed understanding and does not represent the actual transactional environment at that time.