Which of the following best describes fair market value?

Fair market value is defined as the price at which property would change hands between a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts. This definition emphasizes the voluntary nature of the transaction and the absence of any compulsion for either party, which ensures that the agreed price reflects the true market conditions.

This concept relies on the premise that both the buyer and seller act in their own best interests, and through negotiation, arrive at a value that is acceptable to both parties. Fair market value is not simply an arbitrary figure or influenced by outside pressures; rather, it reflects a consensus based on current market dynamics, supply and demand, and the specific characteristics of the property in question.

In contrast, the other provided options do not accurately capture the essence of fair market value. The value set by local tax authorities can be influenced by various factors and may not reflect the true market conditions. An average sale price of recent transactions can provide some insight but may not account for the unique attributes of a specific property or reflect negotiations between willing buyers and sellers. Similarly, estimated values derived from appraisal reports serve an important role in determining property value but are ultimately informed by market transactions, rather than constituting fair market value themselves. Thus, the best description of