Appraisers are aware of the
contractual terms that reflect the type of value that may be
required in preparation of an appraisal. The insurance industry
uses Replacement Value and Actual Cash Value. The Internal Revenue
Service requires that Fair Market Value be used for all donation and
estate tax purposes, references follow:
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Fair Value:
Fair Value is the method of
valuing business assets (and liabilities) for financial
reporting in line with accounting practices as established by
the Financial
Accounting Standards Board (FASB)
Definition:
Fair Value: Fair value is the price that would be received to
sell an asset or
paid to transfer a liability in an orderly transaction between
market participants
at the measurement date.
The appraisal for Fair Value takes into account:
– Most advantageous market (highest and best use; not most
common market)
– Exchange price in market
– What would be considered by market participants (buyers and
sellers)
– Exposure time of possible sale (not forced liquidation)
Note: This type of value is used both in the United States and
internationally.
Fair Value is defined as “the amount for which an asset could be
exchanged between
knowledgeable, willing parties in an arm’s-length transaction”
in the International Valuation
Standards, 2007, p. 88 by the International Valuation Standards
Council.
The International Financial Reporting Standards (IFRS) uses this
same definition.
©2010 American Society of Appraisers
Market
Value:
Market Value: the most probable price which a property
should bring in a competitive and open market under all
conditions requisite to a fair sale, the buyer and seller, each
acting prudently, knowledgeably and assuming the price is not
affected by undue stimulus. Implicit in this definition are the
consummation of a sale as of a specified date and the passing of
title from seller to buyer.
Actual Cash Value:
The price in terms of cash or other
precisely revealed terms that would be necessary to replace a
property with another of similar age, quality, origin, appearance,
size and condition within a reasonable length of time in an
appropriate and relevant market. This definition encompasses the
concept of “as is” or “with or without restoration.” It is the
market value of a property, plus appreciation or less all forms of
depreciation.
Replacement
Value:
The price in
terms of cash or other precisely revealed terms that would be
required to replace a property with another of similar age,
quality, origin, appearance and condition within a reasonable
length of time in an appropriate and relevant market. Intangible
provenance value is additive as appropriate.
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