"Fair Market Value"

[Red Blumenstock]

I am somewhat baffeld over the use of the term "Fair" Market Value. Does that mean there is such a thing as an "Unfair" Market Value? Line 12 of AO-8 states, "Fair Value is an accounting term and market value is an appraisal term". I know that many attorneys use the term "Fair Market value", but should we as appraisers use it? Especially when we are corresponding with our peers? Especially when we are posing as the experts? Just curious.

I am not criticizing and I am not trying to get an argument started, but I am wondering why appraisers use the term "Fair Market Value" instad of simply "Market Value?

Red

 

[larryhaskell]

Red:

I believe the term "fair market value" is outdated. This is a term used several years ago when I started appraising and was eventually changed to "market value." I'm guessing the AI changed it at the direction of the ASC.

 

[Verne Hebert]

The term fair market value has been the term defined by USPAP for some time. In the past year or two USPAP has changed this term to market value (if I am not mistaken).

But hey, not to complicate things, but there are other definitions used in market valuation by differing agencies (example: State of Alaska BLM, State of Montana BLM). There are many other agencies as well.

The term "Fair Market Value" has always troubled me as well. It doesn't as much any more. The term that continues to trouble me is "just compensation" in condemnation..and it is different if State or
Federal.

Verne Hebert

 

[xmrdfghap]

Does that mean there is such a thing as an "Unfair" Market Value?

<span style='color:brown'>
An "unfair" market value would be when a person is under duress of some sort or where there are influences other than normal marketing factors.</span>

 

[George Hatch]

My pet peeve is the use of the term "Market Approach" rather than "Sales Comparison" or "Direct Sales Comparison". Sure, it still shows up on a couple forms, but that term has been outdated for a long time now. I also question how often the term "Matched Pair Analysis" is correctly used. How many times in a year do we truly come across a matched pair?


George Hatch

 

[Paul Ness MAI]

Hi Red, Didn't "fair market value" come into appraisal nomenclature about 10-12 years ago when we were supposed to discount the "market value" if the exposure time was more than a year? I don't like the term either. I think the confusion between our use and the accountants use of the term led to its demise if my memory is correct.

While we're at it, I continue to be amazed at how many appraisers confuse the cap rate with the yield rate, the yield rate with IRR, and the cap rate with the equity rate, mortgage constant with the mortgage rate, etc....not to mention the relationships between them. How can they expect their clients to understand when they can't even get it straight!

 

[DeseretJohn]

In this use, "fair" market value does not mean fai in the same sense as it would in some sort of sporting event or other competition where cheating would not be "fair".

The "fair" in fair market value means reasonable or likely value. If you give your favorite sports team a "fair chance" of getting to the playoffs, you are reasonably expecting them to get there.

 

[Austin]

Fair value use to be an accounting term as Paul stated above meaning discounting a prolonged sale date to a one year PV. That use to be a big topic of discussion at our AI chapter. Then the accounts did away with the term and we were told to forget about Fair Value as it no longer existed. Then in the last few years the term cropped up again. Any time you are dealing with lawyers and accountants you run into different terms. My favorite is “Actual Cash Value.” That is what you run into on fire insurance casualty claims. I did one for a large law firm once and we spent two weeks defining the term. They were totally lost on the subject. Any time you are working with a lawyer or accountant, I always get the definition of market value they want to use in writing and make sure they understand what it means before I start work. Actual Cash Value is market value based on the “Broad Evidence Rule.” This is in Federal Cases only I believe. That means anything you find out about the property by any means as of any date, if it affects the value you can use it. In summary it means: “Cut the crap and tell the court the truth! What was the loss?”
I heard a lot of discussion of why the term Fair Market Value was dropped by the AI but here of late it takes me about five hours or more to remember some of this stuff. I am taking memory pills but I forgot to take one this morning because I forgot to take one last night. Heck, I can't even remember what I had for breakfast. These Friday's are a bad day for me.

PS: Ten minutes later. I think I remember the term Fair Market Value cropping up again in USPAP around 2000 or 2001 under definitions. Give me another 10 minutes and I will remember the rest of the story.

 

[Paul Ness MAI]

Check your calendar it's only Thursday, July 8th! Anyhoo, here's a new value I've heard thrown around with more frequency... "going-dark value"...self-explanatory, but a sign of the times.

 

[Austin]

Paul: My daughter’s baby sitter is on vacation so Monday and Tuesday I stayed home and kept the 7-month-old grand boy from 8AM til 5PM. The only way I could get him to go to sleep was to put him in a backpack and go for a walk. He slept for two hours on my back yesterday while I stood in the shade bent over so his head would not fall over. Try that for two days and you will think it is Friday too. He wouldn’t let me out of his sight long enough to go to the toilet. Thank God for real women!