One of the most misunderstood aspects of personal property appraising is in defining the value. Because there are different definitions of value, you must understand the purpose of the appraisal before you can really understand which value is appropriate to use. Fair Market Value and the Replacement Value are the most commonly used.
Fair Market Value
Fair Market Value is usually auction value. It is commonly used for re-sale, estate, property division, equitable distribution, donation, damage/loss and probate appraisals. It is defined as 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. Fair Market Value of a particular item of property 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 it is most commonly sold to the public.
Replacement Value Or Insurance Value
Replacement Value is defined as the amount it would cost to replace an item with one of similar and like quality purchased in the most appropriate marketplace within a limited amount of time. It is always used for insurance appraisals. Replacement Value is the cost necessary to replace the items being appraised either with:
- New items of like kind, quality and utility
- Similar items of property of like kind, age, quality, and utility having similar wear and tear, decay or defects, and obsolescence as the items being appraised
- Constructed items to provide an exact replica, using the same materials and construction techniques as the original, by a qualified artist or craftsman.