Value is a word that can take on many meanings. For appraisers, it has really one meaning – what something is worth. However, the context of value can change – the when, where, and why. When – meaning how quickly an item is being sold or bought, with or without advertising or finding the most appropriate market. Where – meaning physically where for example a Texas painting sold in TX vs. being sold in Iowa or where could mean a rare, signed piece of art glass sold at an estate sale vs. being sold at a cataloged auction. Why – is the item being valued ? For divorce, estate, donation, or insurance? The why affects what level of value we assign and the when and the where have impact on the markets we investigate to compare values to arrive at our value conclusion. It can be complex. So this week’s term will be the most common level or type of value used: Fair Market Value.
Fair Market Value is the value used in most federal functions. The Treasury actually defines fair market value in a regulation, 20-2031(b) to be precise, as “the price at 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 relevant facts.” The regulation also elaborates that the location of the property be taken into consideration whenever possible and the sale occur at arm’s length. It is important to note that the sale is hypothetical and does not necessarily have to take place. As you can see in this definition the where, the when, and the why are very integral in contributing to this definition of value.
If you have questions about fair market value or your accountant is advising that an estate your involved with be assessed for fair market value,particularly in a year that the estate tax is suspended, feel free to consult with us regarding your questions or concerns.