How to Calculate Fair Market Value?

Fair market value of an item is the purchase price agreed to between a willing buyer and seller, both of whom have knowledge of any restrictions on its use or defects affecting its condition. Determining fair market value requires taking into consideration specific factors about the item, plus changing market conditions.

List the attributes of the item in question. For example, if you are determining fair market value of donations for tax purposes, note each item's age, condition, and any restrictions that exist on its use. If you are donating land, note the condition it has been left in by prior use, and whether there are any restrictions on its future use, such as that it may only be used for farming.

Research the asking price for similar items. If you're donating clothing, look through the items already for sale in resale shops and note the prices listed on items similar to yours. Websites like Turbotax and The Salvation Army help with valuation of used items by giving price matrices for items in various conditions. The newspaper's classified ads can be a good place to go for used furniture listings. The National Association of Realtor's Multiple Listing Service is available online and can help in finding real estate listings and vacant land listings comparable to yours. Use the Kelly Blue Book or Truecar to find the value of a car.

Determine a fair market value for your item that's within the range of those associated with the comparable items.

Adjust your fair market value according to any other relevant factors:

  • Previous purchase price of your item: If you are valuing an item close in time to when you originally purchased it, the price you paid may be an indicator of its current value.
  • Past sales price of similar item: This may be relevant if the sale was very recent, if the item sold is similar in all respects to the item being valued, if both buyer and seller were aware of all elements of the item's condition and any restrictions, and the condition of the sales market in general has not changed.
  • Replacement cost: The cost to replace the item may be relevant if the cost to replace your specific item and the going price of an identical item in approximately the same condition are similar.