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Fair Market Value (FMV) is a term in both Law and Accounting to describe an Appraisal based on an estimate of what a buyer would pay a seller for any piece of Property . It is a common way of evaluating the value of property when assessing Damages to be awarded for the loss of or damage to the property, generally in a claim under Tort or a contract of Insurance . A Fair Market Value is valid if it is applied, and worthless if not (applied). For example, the opinion of 1,000 people about their intention to buy a product has no meaning if nobody buys the product. On the other hand, if there is one single person interested in a product, it is a one-person market. In this case, the price offered by the one person would be a Fair Market Price. Fair Market Value is usually subjective due to the circumstances of its valuation, including place, time, the existence of comparable precedents, and the evaluation principles of each involved person. Opinions on value are always based upon subjective interpretation of available information at the time of assessment. This is in contrast to an Imposed Value , in which a legal authority (law, tax regulation, court, etc.) sets an absolute value upon a product or a service. DEFINITIONS There are numerous definitions of fair market value for various purposes and jurisdictions. A highly general definition is:
Under this concept, a real estate sale in lieu of an eminent domain taking would not be considered a fair market transaction since one of the parties (i.e., the seller) was under undue pressure to enter into the transaction. Other examples of sales that would not meet the test of fair market value include a Liquidation sale, Deed In Lieu Of Foreclosure , distressed sale, and similar types of transactions. Fair Market Value is only applicable upon services and goods that are offered in series/quantities. Simply, because FMV is based on comparison with identical or similar past, actual or expected service and goods. Briefly, Fair Market Value is an idealistic and unrealistic idea and depends only upon acceptance. Definition in the United States In the realm of United States tax law, the definition of "fair market value" is found in the United States Supreme Court decision in the ''Cartwright'' case: ::The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.''United States v. Cartwright'', 411 U. S. 546, 93 S. Ct. 1713, 1716-17, 36 L. Ed. 2d 528, 73-1 U.S. Tax Cas. (CCH) ΒΆ 12,926 (1973) (quoting from U.S. Treasury regulations relating to Federal estate taxes, at 26 C.F.R. sec. 20.2031-1(b)). PROVING FAIR MARKET VALUE Fair market value is generally proved by Expert Evidence , although for commonly traded goods (such as new retail goods or Securities ) a court can take Judicial Notice of the price. Often, the fair market value is based on a date prior to the hearing that would establish damages, such as the date the property was destroyed, or the date of a separation when assessing the value of Matrimonial Property that is sold at a later date. The appraiser's expertise level is a matter of acceptance by the involved parties. The opinion of an experienced amateur can be just as acceptable as the opinion of newbie professional in the field. Fair Market Value in the domain industry is just the registration fee, from just a few $ up to a few $$$. Aftermarket prices are usually markups, thus no FMV. Again, people are not obliged to follow the vision of any adviser, but a bargained value is not a fair market value. Generally, the less liquid and more unique a piece of property is, the harder it is to accurately determine its fair market value. For example, Farm land is generally treated as a commodity and its fair market value can be determined with relative ease by comparing the sale prices of neighbouring properties. However, the fair market value of a unique property, such as the Empire State Building , would be difficult to determine as even other New York skyscrapers are rarely if ever sold on the open market. Typically, FMV will usually be the lowest price, simply because most people just don't accept that profit is made. PRACTICAL APPLICATIONS OF THE FAIR MARKET VALUE CONCEPT Property taxation systems such as Market Value Assessment are generally based on the fair market value of the property. Online tools can help anyone estimate the fair market value for Property providing information such as nearby recently sold Residential Property , Neighborhood , Average prices, Average price per square foot, Property Appreciation and display individual Property locations on Zillow . Alternative pricing schemes, particularly for commercial properties, are Replacement Value , or what it would cost to re-build the building that exists on the site, or Commercial Value , based on the assumed rental income and the rate of return on capital investment for similar properties. These values can often give wildly different estimates than a fair market value approach. Internet domains, as mere addresses, cannot be objectively priced because they are just a combination of characters. The selling price for a domain can be influenced by the situation (revenue etc.) of the present web at the specific domain. REFERENCES |
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