"Fair market value (FMV) is an estimate of the market value of a property, based on what a knowledgeable, willing, and unpressured buyer would probably pay to a knowledgeable, willing, and unpressured seller in the market."
FMV is an interesting definition, and it makes me wonder how many realtors have assisted in the buying or selling of a home where neither the seller nor the buyer were under any kind of duress or pressure - and/or completely knowledgeable for that matter?
Probably not many. And that's not to fault the buyer or seller either - it's just the nature of the business.
I read a great article by Dian Hymer in Inman News about "When to buy real estate above list price." She points out that paying over the asking price makes sense for some people, some of the time. But certainly not for all people, all of the time.
For example, if you are buying a house as an investment property to rent and resell in a few years, it does not make sense to over bid in this market - you run a higher risk of absorbing the costs and you're less likely to recoup the value. If you are buying a house to settle down and raise a family, then it probably does, as long as you're getting a good loan and interest rate that aligns with your long-term financial goals.
As the article implies, it is important to remember that Fair Market Value is an estimate, and it is subjective based on location, timing, and personal preference.
You wouldn't buy a home simply because 'you loved it,' - you need to look at comparable homes in the area, and decide whether it is a good investment based on market conditions.
And vice versa, you also wouldn't buy a home simply because it's a good deal for the area - you need to consider personal preferences such as schools, commute, and whether it is a fit with your financial situation.
With good advice and a healthy understanding of what is 'fair' to you, you can make the right decision for any situation or market.