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Build Wealth by Understanding the Open Market

Build Wealth by Understanding the Open Market

August 18, 2022

Do you need to know how much your car would sell for in the open market? Or what about knowing if your property is gaining or losing money in the current market? How about your small business? The answer to these questions stems from a concept known as fair market value. 

What is Fair Market Value?

Fair market value is the price that an asset would sell for in an open market. Simple, right? There are of course a number of factors that must be considered. These include the price at which the asset has been sold in the past, how much demand is currently available for that type of asset and what others are currently selling for. It is important to remember that fair market value is not a set number; rather, it is something that can change based on the specific circumstances involved.

Other conditions that contribute to determining this value occur whenever prospective buyers and sellers: 

  • Are reasonably knowledgeable about the asset 
  • Act in their own interest 
  • Feel no pressure to make a hasty decision
  • Have plenty of time to make that decision

With these factors and conditions, you should be able to assume a relatively accurate representation of an asset's fair market value. Now that you know what it is, what happens next? 

Practical Uses of Fair Market Value

There are many practical uses for understanding fair market value. One is when someone is looking to buy a property. They may use the fair market value to help them determine whether they are qualified to buy the property and at what price they should offer. 

Another example of using fair market value is when a person is selling their car. They may calculate the fair market value of their car by using a website like Kelley Blue Book to find out what similar cars are selling for.

Fair Market Value Can Apply to...

Homes: In order to determine the fair market value of a property, it is necessary to understand the characteristics of that property and the current market conditions. Factors to consider include location, size and condition.
Cars: Although buying and selling also takes fair market value into consideration, it's important to know that insurance companies will cover damages done to the vehicle's up to the fair market value.
Other assets: Tax authorities use fair market value for many assets to ensure that the buying and selling process is protected from tax fraud. This can include instances of passing down a family business or even when donating property. Assessing these assets by their fair market value guarantees that it's exactly that – fair. 

Who can help you determine fair market value on your assets?

The best way to determine the fair market value of your assets is to have an expert help you. When in doubt, contact the office, we're ready to listen and help you manage your portfolio. 

This material was developed and prepared by a third party for use by your Registered Representative. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. The content is developed from sources believed to be providing accurate information.