Paralegal Advanced Competency Exam (PACE) Practice Exam

What is fair market value?

1. The price set by the seller for a property

2. The assessed value determined by tax authorities

3. The value based on buyer and seller negotiation

4. The value for which property is bought and sold under normal conditions

The correct answer is: The value for which property is bought and sold under normal conditions

Fair market value refers to the price that a property would sell for in an open and competitive market, with both the buyer and seller acting knowledgeably and without undue pressure to transact. This notion assumes that the property is available for sale under normal conditions, allowing for the transaction to reflect the true value agreed upon by both parties in a free market environment. This definition encapsulates the fundamental principles of a fair exchange, where the buyer and seller engage in negotiations, but it specifically emphasizes that the transaction occurs under typical circumstances. Other options, while related to the concept of property valuation, do not capture the complete essence of fair market value. For instance, the price set by the seller can be influenced by various factors, including personal motivations or market conditions, which might not reflect the property's true market value. The assessed value determined by tax authorities often uses standardized criteria and may not accurately represent current market dynamics or the property's actual selling price. Lastly, while negotiations between the buyer and seller play a role in establishing a price, fair market value is ultimately defined not just by negotiation but by the context of a transaction happening under standard, unpressured market conditions.