What Is Fair Market Value, and How to Find It?
Discover what fair market value is and how to determine it with this helpful guide. Learn easy steps to find an estimate of how much a given property is worth.
What Is Fair Market Value, and How to Find It?
If you're looking to buy or sell a business, it's important to understand the concept of "fair market value." Fair market value is the price for an asset that would be accepted by buyers and sellers that are acting independently, without compulsion, and aware of all the relevant facts. This value helps to ensure fair and equitable transactions when transferring ownership.
What Influences Fair Market Value?
Fair market value can vary from transaction to transaction, as it is determined by a variety of factors including the type of business, its size, location, and competition. It is also determined by the condition of the business's premises, any inventory or machinery, the value of the contracts it may have, and its ability to earn income in the future. Before agreeing to a price, buyers and sellers should carefully consider all of these factors.
How to Find Fair Market Value
When seeking to find the fair market value of a business, the first step is to arrange an appraisal from a professional who understands the relevant marketplace. An appraiser can use a variety of methods to determine a fair price, including the market comparison approach, which involves assessing the value of similar businesses in the same location, or the income approach, which considers a company's size, expected earning streams, and the risk associated with achieving those earnings.
Business owners can also use other methods to gauge fair market value, such as consulting with a financial planner or attorney, researching comparable sales, understanding the financial history of the business, and getting an idea of the potential costs of transferring ownership. It's important to remember that fair market value is only an estimate and may not reflect the actual price of the business.
Conclusion
Understanding the concept of fair market value is crucial when looking to buy or sell a business. It is determined by a variety of factors, including the type of business, its size, location, and competition. To get a comprehensive understanding of the fair market value of a business, buyers and sellers should enlist the services of an experienced professional appraiser. However, buyers and sellers can also perform their own research, to get an idea of the potential costs of transferring ownership.