The market determines fair market value. If you put your house on the market, by definition, the best price you get for it is its fair market value. Any other determination, including by an appraiser, is simply a best guess. This gets complicated, however, if the sale is not an arms-length transaction. For instance, if you want to buy your father’s house and you believe that the appraisal over-valued it due to poor conditions, there are a few options. You could go back to the appraiser and explain why there should be an adjustment. You could put the house on the market at the appraisal value to show that no one will buy it at that price. Finally, your state Medicaid agency may permit a small adjustment, for instance a reduction in the amount of the standard realtor’s fee in your state if that is being avoided by a "friendly" sale.
For more information on Medicaid's asset transfer rules, click here.