Contract Glossary
Fair Market Value
Definition
The price an asset would sell for in an open market where both buyer and seller are informed, willing, and under no pressure. It's the 'what would a reasonable person pay?' benchmark that contracts, tax authorities, and courts use.
In Practice
You'll see fair market value referenced in buyout clauses, stock option agreements, and insurance contracts. If your partnership agreement says a departing partner's share gets bought at fair market value, you need to agree on how that value is determined — and ideally specify the method (appraisal, formula, third-party valuation) in the contract.
Common in these contract types
Related terms
Related contract clauses
Related articles
Contracts for Independent Creatives: Photographers, Writers, Designers & Musicians
The contract guide for solo creative professionals. Work-for-hire vs licensing, usage rights, collaboration agreements, kill fees, and getting paid on time.
Business Partnership Agreement: What Every Co-Founder Must Include
Starting a business with a partner without a partnership agreement is the most expensive mistake founders make. Here are the clauses that prevent it.
Lease Agreement Mistakes That Cost Landlords Thousands
Real landlord horror stories and the lease agreement gaps that caused them. Practical fixes for every clause that matters.
Frequently asked questions about fair market value
Three common methods: comparable sales (what similar items sold for recently), income approach (what future cash flows the asset will generate), and cost approach (what it would cost to replace). Real estate typically uses comparable sales. Businesses often use a combination of income and market approaches.
Create a contract with proper fair market value clauses
Generate a professional contract in minutes with all the essential clauses — no legal expertise needed.
Create your contractThis content is for informational purposes only and does not constitute legal advice. For contracts with significant financial or legal implications, review by a qualified attorney is recommended.