Fair Market Value

Fair market value is the figure a property should fetch when both sides know the relevant facts, want to deal and face no compulsion to close. Tax authorities, courts and estates use the term. A gross rent multiplier drawn from arm's-length comparable sales is one way to estimate it for a rental.

The definition rules out sales that are not at arm's length: transfers between relatives, foreclosure auctions and quick sales under pressure. Those sales also produce distorted GRMs, so they should be left out when you build a market multiplier. A family sale at a GRM of 7 is not evidence that the market trades at 7.

For an owned rental, fair market value applied to current rent gives the GRM a buyer would see today. Rising values with flat rents push that GRM up. That is a signal worth watching, because a higher multiplier on the same rent means a lower yield on the equity sitting in the property.

Further reading: Fair Market Value on Wikipedia.