DIFFERENCE BETWEEN MARKET VALUE AND FAIR MARKET VALUE

Fair value is the most used term for valuing an asset. Fair value can be best defined as the value by which an asset changes hands between two parties. It is more likely traced with the fair value of a share price. On the other hand, the market value of assets or anything can be defined as the market’s value for it.

In its simplest sense, fair market value (FMV) is the price an asset would sell for on the open market. Fair market value has come to represent the price of an asset under the following usual set of conditions: prospective buyers and sellers are reasonably knowledgeable about the asset, behaving in their own best interest, free of undue pressure to trade, and given a reasonable period for completing the transaction.

The term fair market value is intentionally distinct from similar terms such as market value or appraised value because it considers the economic principles of free and open market activity. In contrast, the term market value refers to the price of an asset in the marketplace. Therefore, while a home’s market value can easily be found on a listing, the fair market value is more difficult to determine.

Similarly, the term appraised value refers to an asset’s value in the opinion of a single appraiser, thus not immediately qualifying the appraisal as fair market value. In cases where a fair market value is needed, an appraisal will usually suffice.

Practical Uses of Fair Market Value (FMV)

Municipal property taxes are often assessed based on the FMV of the owner’s property. Depending on how long the owner has owned the home, the difference between the purchase price and the residence’s FMV can be substantial. Professional appraisers use standards, guidelines, and national and local regulations to determine a home’s FMV.

FMV is also often used in the insurance industry. For example, when an insurance claim is made due to a car accident, the insurance company covering the damage to the owner’s vehicle usually covers damages up to the vehicle’s FMV.

Fair Value	Market Value
Fair value refers to the actual worth of an asset, which is derived fundamentally and is not determined by the factors of any market forces.	Market value is solely determined by the factors of the demand and supply, and it is the value that is not determined by the fundamental of an asset.
Fair value is most commonly used in the market instead of any other valuation method. As in the fair value, there is an accuracy of the valuation of the asset and is a true measure of the technique.	Market value is not the most common valuation method.
The fair value of an asset often remains the same, and it does not fluctuate more frequently compared to the market value.	The supply and demand forces determine market value, which causes it to fluctuate.
Fair value accounting measure is globally accepted and is also accepted in the International Financial Reporting Standards (IFRS) and generally accepted accounting principles (GAAP)	The market value valuation method is the one that is not frequently used and is not globally acceptable.