Fair Market Value

Overview of Fair Market Valuefair market value is an important concept as far as business valuation of a company is concerned. It has significant presence in the fields of accounting as well as law. Fair market value is extensively used by modern business enterprises.

Description of Fair Market Value
Fair market value could be described as the approximate amount a seller of a property is likely to receive from the buyer. The worth of the fair market value depends on its use. The fair market value is valuable if it is used.

The fair market value of a particular product or property is determined normally by the market price of the same. Fair market value is basically not an objective method.

Definition of Fair Market Value
There are various definitions of fair market value that are in use. The variety of definitions of fair market depends on the purpose and the area in which they are being used. However, there is a generally accepted definition of fair market value. As per this definition the fair market value is the price that is paid for buying a particular product.

Assumptions associated with Fair Market Value
There are certain assumptions that are integral to fair market value and its definition. The first one is that the seller is not acting under pressure. He is selling for his own benefit and has some knowledge about the market where he is trading. The same conditions are also applicable for the buyers.

The product also needs to have been exposed to a market that is open and free. This exposure needs to be for a considerably long period of time.
Application of Fair Market Value
The fair market value is used the most in cases of paying money for covering the losses of property. At times if a particular property is damaged then the fair market value of that property is used when determining the money that is to be paid for covering these damages.

The concept of fair market value is important in the context of the insurance industry as well. In the United States of America fair market value is a significant concept in the following contexts:
Governing Bodies
The Internal Revenue Code
State Laws
Laws on Bankruptcy

 

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Last Updated on : 27th June 2013

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