What is the importance of “fair market value” in property assessment?

The importance of “fair market value” in property assessment lies in its role in establishing a more equitable taxation system. Fair market value represents the price that a property would sell for on the open market, under normal conditions, where both the seller and buyer are acting knowledgeably and without duress. This value provides a standardized approach to assessments, ensuring that properties are valued consistently and fairly, reflecting their true market potential.

When assessments are based on fair market value, it leads to more accurate property valuations, which in turn influences tax liability. Property taxes are often calculated based on these assessments, making it crucial for local governments to have reliable and realistic property values to determine appropriate tax rates. This ultimately helps to ensure that property owners are taxed fairly based on the current economic conditions of the real estate market.

In contrast, the other options do not accurately represent the role of fair market value in property assessment. Disregarding recent sales data would lead to outdated valuations, while focusing solely on land value overlooks improvements made to the property. Additionally, limiting the application of fair market value to only residential properties is incorrect, as it applies to all types of properties, including commercial and industrial. Thus, option B effectively captures the essential function of fair market value in property assessment