- Fair market value can only be determined if both the buyer and seller have full knowledge of the item being sold. For example, if a buyer would pay $200,000 for a house but doesn't know that the foundation is crumbling, $200,000 is not fair market value.
- Fair market value can only be established when there is a reasonable time frame to negotiate a price. If either the buyer or seller is pressured by needing to complete a deal in a short period of time, such as a seller who has already purchased a new house and needs the proceeds from the sale as soon as possible.
- When you claim a charitable donation for goods or property on your tax return, you can only deduct the fair market value of your donation. If you claim your donation to be worth more than $500 you must get a documented appraisal of the goods.
- Your home is valued by its market value rather than the price you paid for it when it is assessed for property taxes. If you have owned your home for many years and the value has appreciated, your taxes may be based on a value significantly higher than you paid for it.
- According to Investopedia, most car insurance companies limit reimbursement to the fair market value of your car, even if it would cost significantly more to buy a new car.
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