What does the term "fair market value" refer to?

The term "fair market value" refers to the price a vehicle would sell for on the open market, reflecting what a knowledgeable and willing buyer would pay a knowledgeable and willing seller in an arm's-length transaction. This value takes into consideration several factors, including the vehicle's condition, mileage, demand, and current market trends.

This definition highlights that fair market value is not just an arbitrary figure but rather a practical estimate based on actual market conditions. Unlike the price listed by dealerships, which may include markups or specific promotions, fair market value reflects a more realistic assessment of what buyers would pay without additional influences. Similarly, while the average price of used vehicles in a region may provide a rough estimate, it lacks the specificity and immediacy of the fair market value as it pertains to individual transactions. Lastly, the prices set by insurance companies may differ due to factors like depreciation or coverage limits, but they do not necessarily represent the market's willingness to transact at a given moment.