What does "fair market value" refer to in leased properties?

"Fair market value" in leased properties refers to the price that a willing buyer would pay a willing seller in an open, unrestricted market. This definition captures the essence of what fair market value entails: it reflects the economic principle of supply and demand, where both parties are motivated, informed, and not under any undue pressure to buy or sell.

Understanding this concept is crucial in various contexts such as real estate transactions, lease negotiations, and property assessments. It serves as a benchmark for determining the value of a property in situations like lease renewals, investment appraisal, and even property tax assessments. In practice, fair market value helps establish a reasonable expectation of price based on comparable sales and current market conditions.

Other definitions, such as the assessed value by local tax authorities, pertain to specific taxable values and do not necessarily indicate true market value. The rental price agreed upon by the landlord and tenant may not reflect the fair market value if negotiative pressures or agreements outside of open market conditions come into play. Similarly, a pre-established value by a third-party appraiser aims to provide an estimated value but can differ significantly from the actual fair market value based on current market activities and comparisons.