Reasonable Exposure Time & 'FAIR Market Value'

[brady2000]

To my knowledge and based on my experience, when the intended use of an appraisal is for estate tax purposes typically the client and/or intended users need 'Fair Market Value':

FAIR MARKET VALUE is defined as: The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate.
Source: Treasury Regulations, Subchapter B, Sec. 20.2031-1

USPAP 2012-13 suggests that reasonable exposure time be reported if considered a component of the definition for the value opinion being developed.

Furthermore, USPAP suggests that, "When reporting an opinion of market value, state whether the opinion of value is:
-in terms of cash or of financing terms equivalent to cash, or
-based on non-market financing or financing with unusual conditions or incentives.
When an opinion of market value is not in terms of cash or based on financing terms equivalent to cash, summarize the terms of such financing and explain their contributions to or negative influence on value."

So my two part question is:
First - How many of you consider development of reasonable exposure time applicable to the definition of 'Fair Market Value' as noted above?
Second - Is simply stating the financing terms for the comparables(cash/conv./FHA/VA/Etc.) enough to satisfy reporting requirements for Standards Rule 2-2 (b) (v). Is it too much to assume that the client and/or intended user will understand 'in terms of cash or of financing terms equivalent to cash' by the disclosed financing terms within the grid, or should it be clearly stated within the report perhaps after the definition of FMV provided?' Or, in your opinions, is it not even applicable to 'Fair Market Value' as USPAP specifically notes 'Market Value' and not 'Fair Market Value'?

I'm curious what say you, and I appreciate any and all of your input.
Thanks!

 

[Mile High Trout]

The principals of substitution.

Why pay more, when you can get the same thing for less?

'Practical availability' in the market 'currently', is a huge deciding factor for what comps to pick.

Don't get caught up too much in the technical details, although the information is important and provides a framework for the approach.

Think; from the shoes of a buyer. Because that's the market.

Use the af search bar above, because there have been innumerate threads on this, that ran hundreds of posts each, within the past year.

 

[Terrel L. Shields]

I believe you are referencing a section that is refering to personal property more than real property but....

Yes, exposure time is appropriate to develop.

You state the Cash equivalent language or explain why it is not cash equiv. such as owner financing at above market rates , etc.

 

[brady2000]

The principals of substitution.

Why pay more, when you can get the same thing for less?

'Practical availability' in the market 'currently', is a huge deciding factor for what comps to pick.

Don't get caught up too much in the technical details, although the information is important and provides a framework for the approach.

Think; from the shoes of a buyer. Because that's the market.

Use the af search bar above, because there have been innumerate threads on this, that ran hundreds of posts each, within the past year.

I'm not sure how any of this applies to my OP regarding FMV/reasonable exposure being applicable to FMV/ & disclosure of financing terms for the opinion of FMV.

 

[CANative]

You can't remove exposure time from market value. The Fair Market Value you're citing probably applies to "Gross Estate" which includes everything of value.

 

[brady2000]

I believe you are referencing a section that is refering to personal property more than real property but....

Yes, exposure time is appropriate to develop.

You state the Cash equivalent language or explain why it is not cash equiv. such as owner financing at above market rates , etc.

Terrel what definition of FMV would you consider more applicable to real property for estate tax purposes?

 

[CANative]

In United States tax law, the definition of fair market value is found in the United States Supreme Court decision in the Cartwright case:

The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.

United States v. Cartwright, 411 U. S. 546, 93 S. Ct. 1713, 1716-17, 36 L. Ed. 2d 528, 73-1 U.S. Tax Cas. (CCH) ¶ 12,926 (1973) (quoting from U.S. Treasury regulations relating to Federal estate taxes, at 26 C.F.R. sec. 20.2031-1(b)).

But like I said, you're definition is being used for the value of the "gross estate" which includes real estate, stocks, bonds, personal property, etc., etc.

 

[sputnam]

USPAP doesn't suggest that you state the reasonable exposure time when exposure time is a component of the definition of market value...it's a requirement. USPAP also requires that your report include the definition of value being used for the assignment and most real estate appraisals are done under definitions that include exposure time. It's also good to cite the source of the definition that you use.

 

[Terrel L. Shields]

What Can said -

"The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. " - Regulation §20.2031-1.

 

[J Grant]

Or, in your opinions, is it not even applicable to 'Fair Market Value' as USPAP specifically notes 'Market Value' and not 'Fair Market Value'?

Fair market value is a form of market value. Any appraisal that relies in part on sales or rentals of other properties is reporting market value, even if the purpose is specific form of MV , such as distress or liquidation value. (which would incorporate a short exposure time, limited marketing effort and compulsion to sell (or other combination of specifics that impact value).

Users of FMV reports may be less familar with how exposure impacts value, the narrative could address in more detail how the exposure relates to sale prices and the value opinion. Prevalent financing or cash used in area sales can be discussed, whatever makes report credible and is supported by data.