The terms used when we talk about what something is worth can get a little confusing for the man in the street. Investors and other business professionals often talk about “Fair Market Value,” which is actually the same as “market value” and refers to what that asset would cost were it to be bought on the open market. These terms should not be confused with “Fair Value,” which refers to the price that someone should pay for an asset. This may or may not be an accurate reflection of its Fair Market Value.

What is Market Value/Fair Market Value?

When someone asks what something is worth, they’re usually asking for its market value. For example, if you want to know how much your house or car is worth, what you’re actually asking is how much money you could get if you sold it. Essentially, market value is the base line for negotiations when you decide to sell an asset.

When we refer to “Market Value,” we mean the price we can reasonably expect an asset to sell for. It is not necessarily related to the original purchase price of that asset, only what it is currently worth. Assets can have different values in different markets. The same house, for example, will have a higher market value in a more desirable and upmarket residential area than in a less high-end location.

Fair market value is often referred to as the “tax man’s measure,” and is usually relied on by valuers, appraisers and accountants as the standard measure for assets, businesses and property.

What is Fair Value?

Sometimes, the value of an asset changes depending on whom owns it. It might be worth more than the purchase price, but it could also be worth less. This is when a valuer attempts to calculate the asset’s Fair Value, which is how much a party should be paying for it. If the asset in question is worth a lot to the person wanting to buy it, then the Fair Value could well be much higher than the Market Value.

Fair Value is related to “two specific parties, taking into account the respective advantages or disadvantages that each will gain from the transaction,” according to the International Valuation Standards. It is commonly applied when the level of goodwill and intangible assets have to be calculated for financial reporting purposes.

The Property Partnership East Rand is a professional valuation company specialising in Asset Valuations. Our team can help you determine the Market Value Or Fair Value of your industrial, commercial or residential property. Call us today.