Written by Russell Harrist
Colorado Certified Residential Appraiser · Certified Probate Expert (CPE) · 25 Years of Experience
Published August 4, 2026
Fair market value is the standard used by probate courts, the IRS, and appraisers for estate property valuations. Here is what it means and why it matters.
Fair market value is defined as the price at which 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, as of a specific effective date.
This definition is used by the IRS, Colorado probate courts, and the appraisal profession under USPAP as the standard for estate-related property valuations.
Willing buyer and willing seller: neither party is forced into the transaction. This excludes distress sales, foreclosures, or urgent situations where the seller must accept whatever price is offered.
Neither under compulsion: the price reflects a normal, arm’s-length negotiation between informed parties, not a transaction driven by unusual pressure on either side.
Reasonable knowledge of relevant facts: both parties are assumed to be informed about the property’s condition, location, the market, and other factors that a typical buyer and seller would research before transacting.
As of a specific effective date: the valuation is anchored to a specific point in time. For date of death appraisals, this is the date the decedent passed away, not the date of inspection or the date the report is written.
Fair market value is used because it represents the most neutral, market-based measure of what a property is actually worth in a real transaction between informed, uncoerced parties. It is the standard that best reflects the true economic value of an asset.
Other measures of value are either too mechanical, too specific to one purpose, or too dependent on one party’s circumstances to serve as a neutral standard.
What an informed, willing buyer would pay an informed, willing seller in a normal market transaction as of the effective date. Used by probate courts and the IRS. Established by a USPAP-compliant appraisal.
Set by the county assessor to calculate property taxes. Not a reflection of market value and often significantly different from what the property would actually sell for.
The cost to rebuild or replace the structure. Relevant for insurance purposes, not market transactions. Usually higher than market value.
A seller’s asking price or an automated estimate. Neither reflects actual market value and neither is acceptable documentation for probate or IRS purposes.
For date of death appraisals, the effective date of value is fixed at the moment of the decedent’s death. The appraiser must analyze market conditions, comparable sales, and all relevant data as they existed on that specific date, not on the date of inspection and not on the date the report is written.
This matters because real estate markets change over time. A property worth $580,000 at the date of death may be worth $620,000 six months later, or $540,000. Only the date of death value is legally relevant for probate and estate tax purposes, and only the date of death value establishes the stepped-up cost basis for the heirs.
The appraisal can be ordered and the inspection conducted after the date of death. In fact, this is always the case. What matters is that the appraiser anchors the analysis to the effective date, using data and market conditions from that point in time.
This is called retrospective appraisal methodology, and it is a standard practice for estate appraisals. All Great Estates appraisals for date of death purposes are prepared using retrospective methodology under USPAP Standards 1 and 2.
Great Estates, Inc. provides USPAP-compliant appraisals anchored to the date of death for Colorado probate, estate administration, and estate planning matters.