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What Is Fair Market Value

July 21, 2010

We’ve discussed orderly liquidation value and forced liquidation value in recent posts. Today, we’ll explain the third type of value a Certified Machinery and Equipment Appraiser (CMEA) may assign to your assets: fair market value.

Fair market value is based on the best price you’d receive for your machinery or piece of equipment if it were sold in the open market. When an appraiser determines fair market value, he or she operates under a set of assumptions. The CMEA would assume that the market is open to and accessible by a large number of buyers and sellers, that all rights and benefits attributable to the asset are included in the sale, and that neither the buyer nor the seller is being forced into the transaction and both are knowledgeable about the asset in question.

Other factors can also be taken into consideration when determining fair market value, such as sales of comparable assets, cost to replace the asset, and expert opinions. Because fair market value depends on the availability of sales data for comparable assets and can be affected by place and time of the sale, the value tends to be subjective. This is why it’s so important to rely on an experienced, certified appraiser who understands how to compile and analyze appropriate data so that you can be confident that the asset values you are given are reliable.  

By: NEBB Institute

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