From A Handbook On the Appraisal of Personal Property. The American Society of Appraisers. The definitions which appear on this page are Federal definitions based on tax law.

FAIR MARKET VALUE

Sec.1.170.1-1(c) Income Tax Regulations, Rev. Proc. 66-49: Donations Sec. 20.2031-1(b) Income Tax Regulations, Rev. Proc. 66-49: Estate Tax

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 boy or shell, and both having reasonable knowledge of relevant facts.”

The components of this concept are
1. Price at which property would change hands.
2. Between a willing buyer anda willing seller.
3. Neither being under any compulsion to buy or sell.
4. Both having reasonable knowledge of all relevant facts, as of valuation date.
5. Appropriate market in location and type (From IRS Valuation Guide for Income,
Estate and Gift Taxes)

Fair Market Value Definitions for IRRS-Related Appraisals per the Code of Federal Regulations (CFR)

Fair Market Value for Charitable Contributions
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.

If the contribution is made in a property that of a type which the taxpayer sells in the course of his business, the fair market value is the price which the taxpayer would have received if he had sold the contributed property in the usual market in which he commonly sells, at the time and place of the contribution and, in the case of a contribution of goods in quantity, in the quantity contributed.

The usual market of a manufacturer or other producer consists of the wholesalers or other distributors to or through whom he customarily sells, but if he sells only at retail the usual market consists of his retail customers.

If the donor makes a charitable contribution of property, such as stock in trade, at a time when he could not reasonably have been expected to realize its usual selling price but is the amount for which the quantity of property contributed would have been sold by the donor at the time of its contribution

26 CFR §1.170A - 1 (c) (2)

Fair Market Value for Gift Taxes
The Fair Market Value is the price at which property would change hands between a willing buyer and a willing seller, when neither is forced to buy or sell, and when both have reasonable knowledge of all relevant facts. Fair Market Value may not be determined by a forced sale price, nor by the sale price of the item in a market other than that in which the item is most commonly sold to the public. The location of the item must be taken into account wherever appropriate.

26 CFR §25.2512-1

Fair Market Value for calcuating Estate Taxes
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. Thus, in the case of an item of property includible in the decedent's gross estate, which is generally obtained by the public in the retail market, the fair market value of such an item of property is the price at which the item or a comparable item would be sold at retail. For example, the fair market value of an automobile (an article generally obtained by the public in the retail market) includible in the decedent's gross estate is the price for which a automobile of the same or approximately the same description, make model age, condition, etc., could be purchased by a member of the general public and not the price for which the particular automobile of the decedent would be purchased by a dealer in used automobiles.

26 CFR §20.2031-1(b)

MARKET VALUE
Federal Home Loan Bank Board, Competitive Equality Act, 12 CFR 563.17 August, 1987.

Market Value is “the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

1. Buyer and seller are typically motivated.
2. Both parties are well informed or well advised, and each acting in what he considers his own best interest.
3. A reasonable time is allowed for exposure in the open market.
4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto.
5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone with the sale.

The above are Federal definitions. There is, therefore, a definition of Fair Market Value and it is also a hypothetical concept. There is a Federal definition of Market Value. The definition of Market Value is adjusted and defined by each state and is also adjusted and defined by the Personal Property Committee of the American Society of Appraisers, grounded in and synonymous with the Federal Government definitions and concepts. They are:

ACTUAL CASH VALUE
Actual Cash Value is defined as “the price in terms of cash or other precisely reveled terms that would be necessary to replace a property with another of similar age, quality, origin, appearance, size, and condition, (Like Kind and Quality, (LKQ); Aetna R210-121). Within a reasonable period of time in an appropriate and relevant market.” This definition encompasses the concept of “as is,” or “without restoration.” It is the market value of a property, plus appreciation or less all forms of depreciation.

LIQUIDATION VALUE
Liquidation Value is defined as “the most probable price in terms of cash, or other precisely revealed terms, for which a property will change hands if sold immediately.

MARKETABLE CASH VALUE
Marketable Cash Value is defined as “the cash that could reasonably be realized in selling a property in question, given a reasonable length of time in an appropriate market.

ORDERLY LIQUIDATION VALUE
Orderly Liquidation Value is defined as “the most probable price in terms of case, or other precisely revealed terms, for which a property changes hands under forced or limited conditions in an orderly manner, generally advertised, with reasonable time constraints, in an appropriate and relevant marketplace, with knowledgeable buyers.”

REPLACEMENT COST NEW
Replacement Cost New is defined as “The cost to replace a property with a substitute which is new, using modern materials, techniques and standards which, however, satisfy the description or use of the replaced property.

REPLACEMENT VALUE
Replacement Value is defined as “The price in terms of cash or other precisely revealed terms that would be required to replace a property with another of similar age, origin, appearance, provenance and condition, within a reasonable length of time in an appropriate and relevant market.” This definition includes various anticipated costs such as:
1. Purchase from an appropriate gallery or dealer.
2. Purchase at a well publicized auction where comparable property is regularly sold.
3. Engagement of an interior designer, commissionaire or any other consultant.

REPRODUCTION COST
Reprodcution Cost is defined as “the total cost to reproduce an exact replica of property at current costs, using a similar or the same artist or craftsman, materials and design as the original property.

 

SPECIAL VALUATION SITUATIONS

VALUES OF ESTATES
If an estate wishes to maintain possession of aproperty and the benefits of ownership, an appraisal using “Fair Market Value” must be obtained in the appropriate marketplace.” This value is used in all estate appraisals unless the estate has already made the decision to sell the subject property. If an appraiser is wrequested to provide a marketable cash value, the appraisal shall be clearly labeled “Marketable Cash Value,” not Estate Value, as it does not comply with the government’s regulations.”

VALUES FOR DONATIONS
If a person wishes to donate property to a museum of a qualified tax exempt organization, the government and courts maintain that the definition of “Fair Market Value” is the same for donation and estate purposes.

“Highest and Best Use” is a phrase used in real estate appraisals that is synonymous with the personal property appraisal phrase “Appropriate Market Place.”

 

APPROPRIATE MARKET LEVELS

Personal property is commonly bought and sold in or at several market levels depending on the quantity, quality and condition of the property. The purpose and function of the appraisal determines the appropriate market that an appraiser analyzes and reports on, relevant to the subject property at auction, wholesale, retail and liquidation.

Implied in the definition of Fair Market Value and of Market Value, is the fact that the appraiser knows the appropriate and relevant market at which the property changes hands under certain circumstances.

 

MAJOR MARKET LEVELS

IMMEDIATE CASH LIQUIDATION MARKET LEVEL:
This represents a market in which similar property is regularly sold, for immediate cash, to willing buyers within a very limited time. The buyers typically are antique dealers, auctioneers, auction houses, second-hand dealers, jobbers, or wholesalers. This represents a bargain or distress market level.

ORDERLY CASH LIQUIDATION MARKET LEVEL
This represents a market in which similar property is regularly sold to willing buyers with time constraints, but in an orderly manner.  This includes, but is not limited to auctions, auction houses, advertised house, shop and gallery sales. The buyers typically are antique dealers, second-hand dealers, jobbers, wholesaler, collectors and so on.

MAJOR AUCTION LIQUIDATION MARKET LEVEL:
This represents the most frequently realized price level at major auctions. It includes the buyer and selling premiums.

MINOR AUCTION LIQUIDATION MARKET LEVEL:
This represents the most frequently realized price level at minor regional auctions. It includes the buyer and selling premiums.

WHOLESALE MARKET LEVEL:
This is the price at which wholesalers can buy from the market or sell to the trade.

RETAIL MARKET LEVEL:
This is the most common retail price at which property is offered for sale in a geographical region

 

 

 

 

 

 










Nelson O. Clayton is an Accredited Senior Appraiser of the American Society of Appraisers. He is designated in Personal Property Residential Contents-General and Antiques and Decorative Arts. He is also a Certified Appraiser of Personal Property of the International Society of Appraisers, Inc., approved to appraise Antiques and Residential Contents. He is actively engaged in the appraisal of household contents, and antiques and decorative arts and he is building his credentials in silver, and fine arts. With consultation with experts, he has appraised paintings and sculpture in the appraised range of $10-$550,000, individual items of silver in the $40,000 range, clocks in the $30,000 range, and furniture in the $125,000 range. His training at the Winterthur Museum helped him to develop these skills. In addition, he is trained in research and analysis, first as a senior bank-lending officer, and second, as an appraiser. In every assignment, Mr. Clayton continues to develop his skills by identifying and analyzing complete household contents, collections, and family heirlooms. Mr. Clayton’s appraisal business has been developed through personal referral and direct contact with families requiring appraisal of their household contents, primarily for estate tax planning and settlement, donations, divorce and insurance purposes. He has evaluated complete household contents as well as selected individual items.