The Short Version:
Market Value is what someone is paying.
Fair Market Value is what someone should pay under normal conditions.
Detailed Version:
Fair Market Value is the determined price a home will sell for in an open market. Often referred to as FMV, fair market value is the benchmark for a property and is used to determine the price range at which a home will sell.
Unlike market value and appraised value, FMV is determined through standards, guidelines, and regulations. Fair market value is important to know in any real estate transaction, and it helps sellers price their home to sell.
Market Value (The "Right Now" Price)
This is the actual price an asset is trading for at this exact moment. It is driven by supply, demand, and sometimes emotion (like a bidding war).
Example: You list your house for $500k, but because three people fall in love with it, they bid it up to $550k. That $550k is the Market Value.
Fair Market Value (The "Common Sense" Price)
This is a theoretical value used for taxes, insurance, or legal deals. It assumes a "perfect" scenario where:
Both the buyer and seller are well-informed.
Neither is being pressured to sell (no "emergency" sales).
The asset has been on the market for a reasonable amount of time.
Example: If that same house is appraised for $510k based on similar neighborhood sales, the IRS or your insurance company will use that as the Fair Market Value, ignoring the "emotional" $40k spike.