FAIR MARKET VALUE
Hello Fellow Appraisers,
This is the most often stated value definition for use in appraisals rendered for advanced assignments. But do appraisers really understand what it is?
A little history first. The word "fair" does not mean equitable, just, etc. It most likely comes from the same origin as did "fair" used in "county fair."1
Some courses teach that fair market value and market value are two different terms. That is not the case. Fair market value and market value are almost always synonymous.
One can simply review several precedence setting court cases that state them as synonymous to see what the legal view is. Here is a small sampling:
"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."2
"The court interpreted the valuation term and found that 'appraised' merely states how to determine 'market value' and that 'market value' and 'fair market value' are synonymous terms, both consistent with the appraiser's approach."3
"The expressions 'market value', 'fair market value', 'cash market value' and 'fair cash market value' are synonymous terms."4
"The expressions 'actual valuation,' 'actual value,' 'market value,' 'market price' and, we add, 'fair value' are synonymous."5
We could go on with a long list of case laws and even jury instructions. But let us get back on topic.
What is a basic definition for fair market value? Black's Law Dictionary, Fifth Edition, page 537, states "The amount a which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. By fair market value is meant the price in cash, or its equivalent, that the property would have brought at the time of taking, considering its highest and most profitable use, if then offered for sale in the open market, in competition with other similar properties at or near the location of the property taken, with a reasonable time allowed to find a purchaser."
Is that the only definition? No. Depending on the assignment and jurisdiction, the definition may be slightly different. But there are common elements that are basic, such as buyers and sellers are typically motivated, both buyers and sellers are well informed or well advised, and both buyers and sellers are acting in what they consider their own best interests, a reasonable time is allowed for exposure in the open market, the transaction is arm's length, usually for money, and no special terms such as financing or sales concessions are involved.
Some courses teach the federal estate tax fair market value definition as the definition to be used for all assignments. That is not the case.
Whether the appraisal assignment is for dissolution of marriage, estate settlement, tax liability, larceny, insurance casualty loss, or whatever, seek the value definition of that assignment in the proper jurisdiction. And, yes, the legally required definition may not be fair market value.
There is not a 'one value definition fits all.'
Written by Bill Hoefer
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1. Black's Law Dictionary, Fifth Edition, page 535. Back to Text ↑ ↑ ↑
2. 336 Wis.2d 562, 2011 WI 82, 800 N.W.2d 468, footnote 2. Back to Text ↑ ↑ ↑
3. 161 N.E.3d 1218. Back to Text ↑ ↑ ↑
4. 163 Tex.Crim. 423, 291 S.W.2d 739. Back to Text ↑ ↑ ↑
5. 149 Conn. 28, 175 A.2d 186. Back to Text ↑ ↑ ↑
6. Illustrations - IStock.com.