Fair market value is best defined as:

Fair market value is best defined as the price negotiated for real estate in a competitive market because it reflects the value determined by informed and willing buyers and sellers engaged in an arm's-length transaction. This definition emphasizes that fair market value is established in an open market context, where both parties are motivated to enter into the transaction without pressure or undue influence, and where appropriate information is available.

In this setting, the fair market value represents the most probable price a property would bring in a competitive and open market, considering all relevant factors such as location, condition, and comparable sales. Therefore, option A accurately captures the essence of fair market value in real estate transactions.

The other definitions fail to encompass the broader principles of fair market value; for example, stating it as the average price of real estate in a locality overlooks the importance of individual property characteristics and specific market conditions that can significantly influence pricing. Similarly, defining fair market value in terms of a minimum acceptable price for sellers or as a price set by government agencies deviates from the concept of mutual agreement in a free market environment.