What Is Fair Market Value
The term “Value” can be regarded as an article’s “Worth” or “Market Place” as defined in Webster’s Dictionary. The phrase “Fair Market Value” can be defined as the price at which the property would change hands between a willing buyer and a willing seller, neither being under the compulsion to buy nor the compulsion to sell; and both having reasonable knowledge of the relevant facts. What does that mean? Simply put, it means that the sale of the item is not a forced sale as in an auction. The item isn’t placed for sale without any, or very little, information about the asset. Each party, the buyer and seller, has knowledge of the origin, condition, history, or other relevant facts, of the asset in question. It is the average selling price of the item.
Fair Market Value depends upon the actual worth of an item in the market place and not by it’s theoretical value. There is no sentimental value associated with Fair Market Value. Sometimes this is difficult to separate from the value of the asset as many people are attached to their items. People also think that the item is worth more than it really is due to their sentimental attachment. I know this from personal experience with clients and even my own family, but to obtain Fair Market Value, sentimental value cannot be considered.
Have you ever been involved with helping your parents or grandparents with a garage sale in an effort to de-hoard their residence? This is where I found a lot of sentimental attachment, for myself and my family. There were things of mine from when I was young and couldn’t believe my parents still had them. I completely understand why they’re keeping them for so many years, they have great sentimental value. Of course they were priced a little high and didn’t sell. As soon as the sentimental aspect was removed from the price, they sold. It’s about selling at Fair Market Value.
Which brings me to my story why an appraisal is so important with items that may be of value. While going through the process of cleaning out the house, we came across some old framed prints of a Canadian landscape. We tried to put a price on them to sell them but couldn’t agree to how much. I’m really happy that they didn’t get put up for sale that day. We decided to get them appraised and to our surprise, they ended up being worth almost $6000 each. They were hanging on our walls for years and we had no idea what they were worth, a little fortune as it turns out. Without the appraisal, these pieces of art might have been sold at a ridiculously low price.
Getting back on track, Fair Market Value can be determined by the use of comparables of similar or like items sold within a reasonable time frame of the appraisal or date in question. Fair Market Value can be obtained for a car, for example, that was involved in an auto accident or destroyed by a natural disaster. The insurance company will pay you the Black Book value for your car. The problems is you just spent $1600 on new tires and another $2000 for new rims. An appraisal of Fair Market Value will take into consideration the extra money you just spent for the new tires and rims. The Black Book value will not. By having an appraisal preformed on your car, even after the incident, you may be awarded a higher settlement from your insurance company. Art that has been destroyed is another great example. Consider that the piece of art was rare and not many exist, by one being destroyed, it changes the value of the remaining. The value of the piece of art that was destroyed needs to be appraised at the time when it existed and not after it was destroyed at the value of the remaining pieces.
There are many different situations where Fair Market Value can be used. Some examples are; for Family Disputes or Divorce, Insurance Valuations or Claims, Financing or Refinancing for Business Loans, Estates, CRA, for the Sale of Assets, for forming Partnerships in Business, Charitable Donations, to name a few. Fair Market Value is the most common type of appraisal preformed today and is used quite often, for many situations.
Our experienced appraisers here at DB Appraisals Ltd, will determine what type of appraisal you need by asking you some questions related to your assets and situation. Information will be gathered, pictures taken and the end result will be an accurate, high quality appraisal report that will stand up in a Court of Law and be recognized by Insurance Companies, Lawyers, Financial Institutions and the CRA. If your in need of an appraisal, contact DB Appraisals Ltd. We will give you the right appraisal for your needs at a low price.
Darryl Bilobrowka, CPPA
Owner/President/Appraiser at DB Appraisals Ltd