Valuation
Fair market value is a definition, not an impression
The phrase sounds like common sense and is not. It is a legal test with specific elements, and several of those elements rule out things owners assume are included.
The test
The willing buyer and willing seller
The standard formulation is the price at which property would change hands between a willing buyer and a willing seller, neither being under compulsion, both reasonably informed of the relevant facts, with the property exposed on the open market for a reasonable time.
Every clause is doing work. Neither under compulsion removes the forced sale the owner is actually facing. Reasonably informed removes bargains obtained from ignorance. Exposed for a reasonable time removes the discount a quick sale would require. The hypothetical buyer and seller are constructs, and the value they would agree on is not necessarily a price anyone has offered.
Four exclusions
What the definition deliberately leaves out
The project itself
Value is measured as though the project causing the taking were not planned. An owner cannot capture the uplift from a new interchange, and an agency cannot benefit from blight its own announcement created.
Value peculiar to the owner
What the property is worth to this owner specifically, through long occupation, a business built on the site or personal attachment, is not what the market would pay and is not compensated.
The compulsion of the sale
The owner is in fact compelled. The valuation pretends otherwise, which is why the figure can feel abstract relative to the owner\u2019s situation.
Speculative future use
A use that is merely conceivable does not count. It must be reasonably probable, supported by evidence such as zoning, demand and comparable approvals.
The practical consequence
Where owners and appraisers most often diverge
Three disagreements recur. The first is use: the owner knows the land could be developed, the appraiser values it as it stands. That argument is settled by evidence of reasonable probability, not by assertion. The second is condition: the owner values improvements at what they cost, the appraiser at what they add. Those are different numbers and the second is the right one. The third is timing: the owner remembers the market a year ago, the appraisal is as of a fixed date.
None of these are resolved by insisting. They are resolved by producing the evidence the definition asks for: comparable sales, zoning history, market data at the valuation date.
Questions about value
What about the tax assessment on my property
Assessed value is produced by a mass appraisal process for taxation and is generally inadmissible and unreliable as evidence of market value. It is usually lower, and sometimes much lower, than market value.
I paid more than the offer. Does that count
Your purchase price is relevant evidence, particularly if it was recent and at arm\u2019s length, but it is not controlling. The market may have moved, and what you paid may have reflected your own circumstances.
A neighbour sold for more per acre. Why does that not set my value
It may be a comparable sale, and if it is genuinely comparable it should be in the report. Differences in size, access, zoning, services and date all require adjustment, which is exactly what the sales comparison approach does.
Does an offer from a private buyer establish value
An unaccepted offer is generally not admissible as evidence of value. A completed sale is. The distinction frustrates owners but it is well settled.
Get a valuation question answered
If an offer has arrived and the number does not match what you believe the property is worth, the appraisal behind it is the place to look. Start with the pages below.