Fair Market Value

Fair Market Value

Fair Market Value is a standard of value that is often used and misused both inside and outside of the valuation community. Based on the original language penned by the American Society of Appraisers, VAVA Inc. defines fair market value as the price at which property would be exchanged between a willing buyer and a willing seller, neither being under compulsion to buy or sell, and each being aware of all relevant facts.

 

Consistent with this definition, fair market value creates a basis for compromise and mediation. Crafting a value estimate that is acceptable to both a willing buyer AND a willing seller involves the appraiser’s skill to create a meeting of the minds between parties with different needs, biases, and motivations. It also involves tremendous effort from the appraiser to maintain independence with a strong sense of ethics in every assumption made.

 

VAVA Inc. frequently prepares valuations of privately-held businesses owned by parties in a divorce (marital or corporate). VAVA Inc. serves as the appraiser for both parties in many of these cases. In other situations, VAVA Inc. is retained by one side in the divorce. In all divorce cases, the appraiser knows that the valuation is “Fair” if both parties are upset with the value opinion produced by VAVA Inc.

 

A fair market value business appraisal usually includes the same three valuation approaches: Income, Market, and Cost. The Income Approach looks forward, the Market Approach looks backward, and the Cost approach evaluates the market value of assets and liabilities as they are at present (the moment of the valuation). The final value estimate is reconciled based on the strengths and weaknesses of each approach in the current appraisal situation. Every valuation assignment is different, but the application of approaches is similar. Finding Fair Market Value is an Art and a Science.

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