Certified Valuation Analyst (CVA) Practice Exam

Which of the following is a key characteristic of fair market value?

1. It is based on actual transaction prices.

2. It requires seller's remorse.

3. It includes intangible assets.

4. It is always higher than liquidation value.

The correct answer is: It is based on actual transaction prices.

Fair market value is defined as the price at which property would sell in a competitive and open market under all conditions requisite to a fair sale, with both buyer and seller acting prudently and knowledgeably. The characteristic that it is based on actual transaction prices emphasizes the principle that fair market value reflects real-world transactions rather than theoretical or hypothetical scenarios. This characteristic is crucial because it anchors the valuation process in observable market data, ensuring that the determined value is fair and justifiable based on what similar properties or assets have sold for in a relevant timeframe. By relying on actual transaction prices, valuers can mitigate biases and ensure that the value is representative of what participants would realistically pay in a marketplace environment. The other options lack alignment with the established definition of fair market value. For example, while intangible assets could factor into an overall valuation in certain contexts, fair market value does not inherently require them to be included. Similarly, seller's remorse is unrelated to the objective measurement of value, and there is no absolute rule that fair market value always exceeds liquidation value, as it can vary based upon the circumstances surrounding the asset's sale.