A more thorough explanation:

The fair market value (FMV) is the value of a property or asset that is determined by the marketplace or objective purchasers, rather than by a subjective individual. It is the price that an informed and unpressured buyer would pay to an informed, unpressured seller in an arm's length transaction.

For example, if you were selling your car to a stranger, the fair market value would be the price that the buyer and seller agree upon based on the car's condition, mileage, and other relevant factors. This price would not be influenced by any personal relationship between the buyer and seller, such as if you were selling the car to a family member at a discounted price.

The FMV is used in many laws and regulations, such as the Internal Revenue Code and bankruptcy law. It is often determined by a judge in a hearing, and it is defined as "the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts."

For example, if a person is filing for bankruptcy, the court may determine the FMV of their assets to determine how much they can pay their creditors. Or, if a person is donating a piece of artwork to a museum, the FMV of the artwork may be used to determine the tax deduction they can receive for the donation.

In Canada, the FMV is defined as "the highest price" of the subject matter, according to the Canada Revenue Agency.