Essay on Fair Market Value And Fair Value

855 Words Sep 9th, 2016 4 Pages
Fair market value is a standard typically used for real estate valuation, certain tax issues, and employee stock ownership plans. Fair value in a legal context is a standard typically used for business interest valuation for estate tax and business litigation. Fair value in a financial reporting context is appropriate for the preparation of financial statements. The terms fair market value and fair value are typically used in business-owner buy-sell agreements without proper consideration of the confusion these terms can cause.

Fair market value is defined by the Internal Revenue Service as the price at which a property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts. It is implicit in the definition of fair market value that the sale is consummated as of a specific date and the title pass from seller to buyer under the following conditions: buyer and seller are typically motivated, both parties are well-informed or well-advised, each participant is acting in what they consider their own best interest, a reasonable time is allowed for exposure of the business in the open market, and payment is made in terms of cash. Compare this to a typical negotiated transaction where differences from the market value conditions may occur in the sophistication of the parties, the information available to the…

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