FMV
Some appraisers have been taught that Fair Market Value (FMV) and Market Value (MV) have different meanings. Do they?
It is being taught that Market Value has the "compulsion to buy or sell" and FMV does not. I disagree.
PLEASE DO NOT mention or name the society or their course. Also, do not mention the name of a book or the author that teaches the same methodology (who, by the way, was the basis for the course's logic). We do not want to disparage any entity or person.
We know from the very first FMV post that the legal arena has been using FMV for a while. Thus, FMV definitions are derived from legal sources. So does this two-definition teaching hold up in the legal arena? You decide . . .
"This court has determined that 'for the purposes of assessing real property . . . 'full value' . . . means market value. The terms 'full value,' 'market value' and 'fair market value' are synonymous and interchangeable in the opinions." Property tax case.1
"The expressions 'market value', 'fair market value', 'cash market value' and 'fair cash market value' are synonymous terms." Property tax case - Lareny case.2
"Our courts have said that 'market value,' 'fair market value,' 'cash market value,' and 'fair cash market value,' are synonymous terms."3
"'Market value,' 'fair market value,' 'cash market value,' and 'fair cash market value' are synonymous expressions." Eminent domain case.4
"The use of the term 'fair market value,' synonymous with 'market value,' which has been repeatedly defined by statute and court decision in this State, provides a clear and concise rule of valuation." Estate tax case.5
"The term reasonable market value, cash market value, fair market value or fair cash market value are considered substantially synonymous." Damages case.6
Yes, I can provide a bunch more citations, but do we need to see more?
Swing your daggers all you want. I am not telling anyone not to follow a society's course that teaches that FMV and MV are to be defined differently. I am merely reporting what I have discovered.
The real danger is when you are a member of two societies that each one mandates adhering to their methodology and their methodologies conflict. If you render an appraisal that only follows one and not the other, you have violated one set of standards. And if that is not enough to think about, imagine using or mis defining the wrong term (MV or FMV) in a case you are working on as an expert witness! You can expect to be axe murdered on the witness stand unless you render the report with both results (called the broad evidence approach).
I want to just outline the basic elements of fair market value (FMV).
FMV consists of the following elements:
1. Buyer and seller are typically motivated; and
2. Both buyer and seller are well informed or well advised; and
3. Both buyer and seller are acting in what they consider their own best interests; and
4. A reasonable time is allowed for exposure in the open market; and
5. The transaction is arm's length; and
6. Usually for money or financial arrangements comparable thereto; and
7. No special terms such as creative financing or sales concessions are involved.
I used some of the FMV elements broken down and listed in the Federal Code of Federal Regulations.6,
Okay, what makes different FMVs different? Added elements specific to the assignment. One obvious added pair of elements would be the effective date and vicinity.
For example, FMV is used for larceny (federal and state jurisdictions), dissolution of marriage (some states do not use FMV), estate tax (federal, some states and some counties), inheritance tax (some states), insurance casualty loss (some states), and on and on we go. You have the federal level and all the states as well as the District of Colombia.
FMV definitions abound!
For example, for dissolution of marriage, depending on the state, the effective date may be the date of separation, date of decree, date of filing, date of trial, or a date that is discretionary, etc., etc., etc. And some states reject FMV and require Net Value, Net Worth, Present Value, etc. Wow!
With nearly 50 possible appraisal assignments, coupled with all the jurisdictions - well, you do the math. This is why I do not believe one can claim to have an international appraisal methodology course. Imagine doing this for all or most of the countries out there!
Written by Bill Hoefer
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1. Supreme Court of Wisconsin - 336 Wis.2d 562, 2011 WI 82, 800 N.W.2d 468, footnote 2. Back to Text ↑ ↑ ↑
2. Court of Criminal Appeals of Texas - 163 Tex.Crim. 423, 291 S.W.2d 739. Back to Text ↑ ↑ ↑
3. Court of Civil Appeals of Texas, El Paso - 83 S.W.2d 772. Back to Text ↑ ↑ ↑
4. Court of Civil Appeals of Texas, El Paso - 68 S.W.2d 570. Back to Text ↑ ↑ ↑
5. Supreme Court of North Dakota - 236 N.W.2d 850. Back to Text ↑ ↑ ↑
6. Supreme Court of Alabama - 429 So.2d 273. Back to Text ↑ ↑ ↑
7. Federal Code of Federal Regulations, Title 12, Chapter V, Part 564.2(g)(1-5) (2023). Back to Text ↑ ↑ ↑
2. Illustrations - IStock.com.
3. Illustration - Antique post card owned by author.