Fair Market Value (FMV)
The price a property would sell for between a willing buyer and seller; it anchors the equity cushion behind a note and the math in foreclosure.
Fair market value (FMV) is the price a property would sell for in an open-market transaction between a willing, informed buyer and a willing, informed seller, neither under pressure to act. It is the standard definition of "what a property is really worth," and it underpins note buying in two ways: it sets the equity cushion behind a note (through LTV/ITV), and it figures into the math of deficiency and recovery if a note ever goes to foreclosure.
How FMV is established
Because there is no single "true" number, FMV is estimated using one or more methods a note buyer relies on during due diligence:
- Comparable sales — recent sales of similar nearby properties, the most common basis
- Broker price opinion (BPO) — a real estate broker's value estimate
- Appraisal — a licensed appraiser's formal opinion to a regulated standard
- Automated valuation model (AVM) — a data-driven software estimate
Buyers often discount FMV for condition or to a quick-sale value when modeling a default scenario, since a forced sale rarely brings full retail FMV.
Why FMV anchors note value
The note's protection comes from the property, so FMV is the denominator in every cushion calculation:
- LTV = loan ÷ FMV and ITV = price ÷ FMV — the lower these are, the safer the note.
- The equity behind the note is FMV minus the debt.
- In a non-performing note, the likely recovery is FMV (adjusted for condition and a quick sale) minus foreclosure and selling costs.
An accurate FMV is therefore essential to pricing a note correctly. An inflated value overstates the cushion; a conservative value protects the buyer.
FMV in foreclosure and deficiency math
Many states require that a deficiency be measured against the property's fair market value rather than a low auction price (a fair-value offset), protecting borrowers from lenders bidding artificially low at the trustee sale. So FMV is not just a pricing input — it can be a legal benchmark in recovery.
FMV vs. assessed value vs. payoff
Three numbers often confused:
- FMV: what the property would actually sell for on the open market.
- Tax-assessed value: the county's figure for taxation, often not equal to FMV.
- Payoff: what the borrower owes on the loan — about the debt, not the property's worth.
What it means when you sell
Providing evidence of an accurate, favorable FMV is one of the most effective ways to support a strong offer. Share a recent appraisal, BPO, comparable sales, or even a credible tax/market value, plus honest detail on condition and upgrades. The buyer will confirm value during diligence, but a well-documented FMV reduces uncertainty and helps your price hold. Our note value calculator uses property value alongside the payment terms to estimate your note's worth.