Many sectors utilize the term “fair market value (FMV).” Whether real estate, a business, a physical asset, or an intangible asset, you will have the target subject matter, market conditions, and a replacement cost.
Some of these sectors include company valuation and appraisals, business brokerage, mergers and acquisitions, venture capital, insurance companies, commercial financing, property taxes, charity donations, tax purposes, eminent domain, and federal and state laws. However, the term is not limited to them.
Please read what is fair market value in a business valuation.
The Difference Between Fair Value and Market Value
The primary difference between fair value (FV) and fair market value (FMV) is that fair value is an accounting concept. In contrast, fair market value refers to the price at which an asset can be bought or sold in an open market transaction and at what market price.
There are also various definitions of the term. However, when it comes to a corporate entity, most are quite consistent and comparable. The following is a list of some of the most common definitions of “fair market value” in the business appraisal industry:
Definition #1
The price at which property would change hands between a willing buyer and a willing seller in an open market, assuming both parties are not obligated to transact and have a reasonable understanding of the relevant facts.
Definition #2
When neither party is under any pressure to purchase nor sell, and both parties have a reasonable awareness of pertinent information, the sum at which the property would change hands between a willing buyer and a willing seller.
Definition #3
The price that someone would purchase or sell an asset in a transaction between two interested parties. As opposed to a forced or liquidation sale.
Definition #4
The price, as of a commodity or service, at which both buyers and sellers agree to do business.
Definition #5
The price at which a willing seller transfers an item or service to a willing buyer. Both the buyer and the seller consider themselves rational and reasonably understand the relevant facts.
Fair Market Value (FMV) is a Business Valuation
We aim to uphold the above standards for fairness in business assessments and associated operations. While this range may be a starting point for buy-sell negotiations, market analysis, market activity, plans, and synergies from either the seller or the buyer might push the selling price above or below fair market value.
Many times, we will include a third-party real estate appraisal in our business valuation report.
The allocation of the purchase price for tax purposes and cost basis allocation will also affect the selling price.