Definitions and Explanations

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Market Value: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

The Internal Revenue Service defines fair market value as: Fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts. If you put a restriction on the use of property you donate, the FMV must reflect that restriction." IRS Publication 561. Comment: Forming an opinion of market value is the purpose of many real property appraisal assignments, particularly when the client's intended use includes more than one intended user. The conditions included in market value definitions establish market perspectives for development of the opinion. These conditions may vary from definition to definition but generally fall into three categories.

1. The relationship, knowledge, and motivation of the parties (i.e. seller and buyer)

2. The terms of sale (e.g., cash equivalent, or other terms); and

3. The conditions of sale (e.g., exposure in a competitive market for a reasonable time prior to sale).

Similar in Estate, Trust & Probate appraisals, the definition of market value that should be used is Fair Market Value. This is the price at which a property would change hands between a willing buyer and a willing seller, with neither being under any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts. The definition is often tied to the Internal Revenue Service (IRS)'s definition, which is frequently included in appraisal reports. 

Here's why this definition is crucial in probate:

• Estate Tax Purposes:

Fair Market Value is the basis for calculating estate taxes, ensuring accurate valuation of the deceased's assets. 

• Asset Division:

It provides a fair basis for dividing assets among heirs, ensuring equitable distribution of the estate. 

• Legal Compliance:

Using the IRS definition helps ensure compliance with legal and regulatory requirements for probate proceedings. 

• Transparency and Fairness:

It establishes a transparent and objective value for the property, minimizing disputes among beneficiaries. 

Essentially, the appraiser needs to determine the most probable price a property would fetch in the open market, assuming a typical sale, not a forced or distressed sale. The appraisal should reflect this, providing a credible valuation for the probate process. 

Please understand that Market Value is not synonymous with List or Asking price.