Certified Valuation Analyst (CVA) Practice Exam

Which components are part of the fair market value definition?

1. Willing buyer, Not under compulsion, Willing seller, Knowledge of relevant facts

2. Actual sales price, Existence of a market, Control, Lack of marketability

3. Willing seller, Current market conditions, Operational efficiency, Profitability

4. Investment interest, Legal considerations, Tax implications, Negotiation status

The correct answer is: Willing buyer, Not under compulsion, Willing seller, Knowledge of relevant facts

The definition of fair market value fundamentally revolves around the concept of a transaction occurring between a willing buyer and a willing seller, both of whom are knowledgeable about the relevant facts of the transaction. This means that neither party is under any undue pressure or compulsion to complete the transaction, which ensures that the price agreed upon reflects a genuine market value rather than a coerced or misinformed decision. In this context, the components listed—willing buyer, not under compulsion, willing seller, and knowledge of relevant facts—collectively encapsulate the essence of fair market value. The inclusion of all these elements signifies that the transaction is taking place in an open market environment, where both parties have freely decided to engage based on their understanding and insights. Other options, while they include important considerations related to market transactions, do not align as closely with the fundamental principles of fair market value as the selected answer does. For instance, references to actual sale prices or market existence deal more with outcome measurements rather than the preconditions necessary for establishing fair market value.