"Fair Market Value"

[Terrel L. Shields]

My own take of Market Value and Fair Market Value boils down to the element of where within the range of indicated value you pick the value.

MV and FMV can be one and the same.

Market value suggests it is a value that is "most probable" whereas, the older and often court tested language of Fair Market Value suggests it is the "highest probable price a willing buyer would give in cash" [quoted from an Arkansas court decision abt. 1920]

If ten comps suggest a range of 30,000 to 35,000, and 32,000 is the most frequent indicated value of the comparables, that suggests the most probable price (market value). If 3 of the sales were 34,000 and only 1 is 35,000, you might conclude that 34,000 was the Fair Market Value as it is more probable than the since 35,000 indicator....

It is subtle, but definable and courts are adopting the Market Value definition more often these days.

Ter

 

[Fred]

Terry,
A well-known "highest price" definition comes from Sacramento RR v. Heilbron (1909). It may still be the standard for condemnation in California.

Here's an Arkansas definition for ya:
"...the price it would bring from a willing purchaser after the owner has had a reasonable time within whic to find a purchaser willing and able to buy."
Herndon v Pulaski County, (1938)

 

[David C. Johnson]

<span style='color:darkblue'>Aside from recent IRS estate / charitable contribution-type appraising (where I simply -- and wisely, I believe -- quoted this agency's preferred / requested definition of value as cited word-for-word from their current forms paperwork and as passed on to me by my law firm client), my last exposure to "Fair Market Value" was when appraising for the Resolution Trust Corporation (RTC) in the early 1990s. As is consistent with the following two partial quotes from others in this tread, their (i.e., the RTC's) intent was to distinguish their value definition (for their arguably impacted properties) from the more "traditional" "Market Value" in real estate appraising as was commonly defined during the time period (i.e., USPAP -- which may be absolutely identical as defined today by USPAP as far as I am aware -- even regarding "highest price" and "most probable price" verbiage which has always preceded USPAP, as far as I know).

Paul:

"...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..."

Austin:

"...Fair value use to be an accounting term as Paul
stated above meaning discounting a prolonged sale
date to a one year PV..."

dcj</span>

 

[jtrotta]

Prior to the "Limiting Conditions" of the reports;

Definition of Market Value - the most probable price :?: which a property should bring :?: in a competitive and open market (what happens to the definition in a non-competitive market :?: ) under all conditions requisite to a fair sale (in some instances I can think of unfair sales), the buyer and seller, each acting prudently, knowledgeably (oh that ones good), and assuming the price is not affected by undue stimulus (when several bids are made on a property-is that undue stimulus :?: ).

And it goes on further with more interesting stuff; the language and terms are as interchangeable as a flat tire, they are put there so that Attorneys can defend them in court, as was indicated by someone in the thread who was doing the IRS case; the attorney thought they didn't mean it in that fashion of your explanation.

Unfair Market Value; would be the opposite of what the definition of the term is at the time someone decides to alter the definition.

When you add Real Estate agent to the mix of these terms, is the "value" being influenced :?: When you add an attorney to these terms is the "value" being influenced :?: When you have a court ordered sale is the "value" being influenced :?: When the REO properties come onto the market place is the "value" being influenced :?: In any of these situation's does the Seller become MORE knowledgeable than the Buyer :?: and how does that affect the "undue influence" aspect of the definition :?:

Now do we have "Unfair Market Value" based on some of the condition's mentioned above :?: Possibly, as the old saying goes it Depends on the circumstances at the time of the inspection.

Are we not playing with a little influence on forcasterating, by using past sales history and placing a value at the time of inspection, with no Buyer in hand & ready to buy while we're there :?: Ah well I guess thats why we git the big bucks to know that stuff while we're right there without a Buyer in hand.

Red, how thoughtful of you to bring up this subject :lol: :lol:

8)

 

[George Hatch]

Talking about the conditions of a sale, what about when one broker is handling both buyer and seller? I've never understood how the advocate for the seller can also be the advocate for the buyer and fairly represent both parties' interests.

I have one area that I do a lot of work in where one commercial broker always tries to handle both ends and pumps values like crazy. For a while the transactions were so prevalent that he was creating his own value tier. Based on comparisons with other sales transactions involving other agents, the buyers in these transactions almost always get worked. Needless to say, I seldom appraise those properties for the sale price; there just isn't any outside data that supports the prices. These deals usually go to a different lender, one using more 'cooperative' appraisers. So when I go to verify the sale, it is not uncommon to run into a buyer who is less than happy. I can't wait to see this broker get sued.


George Hatch

 

[Austin]

This discussion (value influencing) is taking an interesting turn. There is another thread running on the subject of verification of sales that ties in with this discussion. The commercial market here is in a town of about 50,000 and there are two large commercial brokers. We are in the development state of growth. I have an appraisal for one of them to do today. These guys are good friends of mine, but I seldom do any appraisals on their sales. Why? Because they know that I know their tricks. The largest commercial broker stacks the deck by bringing in out of town tenants for lease space and renting on short term leases of three years at a rate about 30% higher than average market rent for the same space. After three years the tenants have figured out what he is doing and do not renew. Then he reports the rental rates in the MLS so the appraisers will use jacked up rent numbers. Then he gets clients to build strip centers based on these inflated rent projection, which has resulted in a market glut of this type space. He had a column of adds in the Sunday paper yesterday about a foot long by two columns wide of commercial properties for sale. I don’t know if he knows it or not, but I appraised about half of them for the estate that owns them. I know more about the background of these properties than he does because I spent a lot of time with the estate executors. I appraised a warehouse he sold a few years ago and he called me and said he didn’t disagree with the appraised price but he “felt” my cap rate was to high. I axed why he felt that way and he said his just seamed more reasonable.
I never verify any local commercial sales or use any information supplied by these brokers for above reasons. I have read my share of leases over the years and know the long term market rent. I know what these commercial brokers know, I know how they operate, and I use my estimate of realistic rent and expenses and do it my way. I ride by all of the new vacant strip center space a couple of times a day and count the vacancies every time I cruise by. I got a call from a local banker about a year ago and he said this big broker told him if he needed help on his commercial loans that I was the only local appraiser that knew what was going on and advised him not to shoot me any BS. Wonder where he learned that?
The moral of the story is if you don’t know your market players and have inside information gathered from years of experience, you can’t make up for it with verification or playing games with the definition of market value. Appraising is a circular reference profession. You can’t operate without inside information and you can’t get inside information unless you are in the business. Also, you can’t base price estimates on comparable sales, you can’t rely on data from brokers, and the only way to deal with this mess on a broad statistical basis. That is another reason I don’t like USPAP. If I did it according to some of their verification rules and based on their method of supporting income and expenses I would be part of the problem because that is a sure path to coming up with wrong answers. If I know the data is skewed, would it be ethical to use it?

 

[Pamela Crowley (Florida)]

If I know the data is skewed, would it be ethical to use it?

My own answer is "NO", it is not ethical to use data I know is skewed. The list of Realtors who's MLS data I do not trust is growing faster. Enjoyed your post and the truth it tells. Can only hope various powers that be are also reading it.

 

[Paul Ness MAI]

George, it's called dual agency and there was a time when it was illegal in PA (not so long ago) but it is now legal and common. When we were selling our house last year, we had to sign a form indicating that we understood what this meant and agreed to it. I asked the real estate agent how she can represent both sides' best interests at the same time. She hemmed and hawed. I sure wouldn't want to be in that position as an agent. I was uncomfortable enough as the seller and weighed every word said to the agent after that!

 

[xmrdfghap]

<span style='color:brown'>Paul, last year Oklahoma went to two types of agency....one is a single party broker, the other is a transaction broker. The single party broker MUST represent EITHER the buyer or the seller.....not both. The transaction broker represents the transaction only.......for a person to be a "dual agent" they must be a transaction broker for one party and then can be a single party broker OR a transaction broker for the other.

If you were uncomfortable with the agent being dual party, why didn't you negotiate a contract for that person to represent you exclusively? You could have had an agreement that stated their commission was 3% (assuming a typical 6% "normal" commission) for representing you and that the buyers agent would receive 3% from the buyer paid out of proceeds of the transaction, couldn't you? That way the fiduciary responsibility to you would remain intact.</span>