What is Fair Market Value (FMV)?
The Short Answer
Fair Market Value (FMV) explained simply
Fair Market Value (FMV) is the price a business would likely sell for in a competitive market. It assumes a few things: the buyer and seller both know all the important facts, they are both willing to make a deal, and neither is being forced into it. Think of it as the sweet spot where a deal would naturally happen without any special circumstances pushing the price up or down. This is different from a "strategic value," which might be higher if a specific buyer gains extra benefits from the purchase.
Real-World Example
Selling a Coffee Shop
Imagine a coffee shop owner wants to sell. They get an appraisal that sets the Fair Market Value at $200,000. This means that, based on similar sales and the shop's financials, a typical buyer would pay around $200,000, and a typical seller would accept that price. If a large coffee chain wants to buy it to eliminate a competitor, they might pay more than $200,000. That extra amount is not part of the FMV; it's a strategic premium.
Why this matters
Knowing the Fair Market Value is crucial for several reasons. It helps you set a realistic asking price when selling your business. It's also important for tax purposes, legal disputes, and estate planning. For buyers, it helps them understand if they are getting a fair deal.
Fair Market Value is a snapshot. It can change based on market conditions, the economy, and even how well your business is doing. Get an updated valuation if a lot of time has passed or if major changes have occurred.
Fair Market Value is a snapshot. It can change based on market conditions, the economy, and even how well your business is doing. Get an updated valuation if a lot of time has passed or if major changes have occurred.
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