How is "fair market value" typically defined?

Fair market value is defined as the price a property would sell for in an open market transaction between a willing buyer and a willing seller, both of whom are knowledgeable about the property and not under any pressure to complete the transaction. This definition emphasizes the conditions of a free market, where the participants are motivated to engage in the sale based on fair negotiation and without undue influence.

This concept is critical in real estate as it reflects what buyers are realistically willing to pay for a property and what sellers are willing to accept, fostering a competitive environment that leads to an accurate valuation of properties. Fair market value is often used for various applications, including property tax assessments, real estate transactions, and financial reporting.

Other options do not encapsulate the essence of fair market value. For instance, the price determined by a tax assessor is based on assessed values which may not reflect current market conditions. Similarly, the average price of similar properties doesn't account for the unique circumstances and negotiations involved in individual transactions. The final sale price after negotiation is relevant but may not represent the fair market value if one side was pressured or uninformed. Thus, answer choice B provides the most comprehensive and accurate definition of fair market value in real estate.