Fair market value

Fair market value is like sharing toys. Let's say you have a toy car and your friend has a toy plane. If you want to trade toys, you have to agree on a fair and equal exchange. That means if your car is worth $5, and your friend's plane is worth $10, then you have to give them something extra to make the trade even.

In the grown-up world, fair market value means the price of something that is agreed upon by people who know how much it is worth. It is like when you save up money to buy a new toy. You might ask your parents how much money you need, and they will tell you it costs $20. That is the fair market value of the toy.

For grown-ups, things like houses and cars have a fair market value too. This means that the price is based on how much people are willing to pay for it. If a house is near a good school, has a big backyard, and is in a safe neighborhood, people will be willing to pay more for it than a house that is not in such a desirable location.

So, fair market value is kind of like figuring out how much your toys are worth before you trade them, except it's for grown-up stuff like houses and cars.