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If Alice and Bob buy a house for $100,000, and one of them needs to buy out the other's share soon after, would the fair market value be $100,000 (the purchase price) or $94,000 (what they would get after brokers' fees if they sold it)?

While I understand that prices are generally whatever people can negotiate, assume that Alice and Bob either want to be fair with each other or have a contract requiring one to pay the other the fair market value for their share.

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    The fair market value isn't guaranteed to be either one or the other. It might be both or something else. The fair market value is not a definite, unique number.
    – BrenBarn
    Commented Jul 5, 2016 at 1:05
  • Depends on who agrees to pay how much of the fees. This is a contract negotiation, not a formula.
    – keshlam
    Commented Jul 5, 2016 at 18:33

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It depends upon the skill of the negotiator. In my own case, of such a thing, I received (([fair market price]-[mortgage]) * (.92)) / 2.

The .92 represented what was left over of a 6% real estate commision plus 2% closing costs. It was fair enough and the other lawyer was a very good negotiator.

To answer your question in a general manner, you typically split the proceeds of the sale not necessarily the sale price. Real estate has especially high transaction costs. Depending upon market conditions they could be higher than 8% or even 10%.

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  • Corrected, TY for your math skills.
    – Pete B.
    Commented Jul 5, 2016 at 21:10

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