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Fair Market Value

Posted on by Dave Maloney

Fair Market Value

(This is the 3rd of a 3-part article | Part 1 | Part 2)

(by David Maloney) Fair market value is often confused with market value. The stumbling block is normally in regards to the issue of title transfer. While a market value appraisal assumes the transfer of sold property to the new owner as of a specified date, fair market value assumes that the item is not sold, but rather that ownership is retained. Fair market value is used, as an example, by the IRS to substantiate tax deductions for noncash charitable contributions, or as a basis on which to levy estate taxes on property in the decedent’s estate that is bequeathed and not sold.

Fair market value is defined by a legal or regulatory jurisdiction and may vary with individual jurisdictions, i.e., from state to state. For the purposes of this book, we will make use of fair market value as defined by IRS Regulation §1.170A-1(c)(2) and as expanded on by the Treasury Regulation state §20.2031-1(b).

Definition of Fair Market Value

Treasury Regulation §1.170A-1(c)(2) defines FMV for noncash charitable contribution purposes as:

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Market Value

Posted on by Dave Maloney

Market Value

(This is the 2nd of a 3-part article | Part 1 | Part 3)

(by David Maloney) Market value is an all-encompassing general concept that is based on a market perspective (as opposed to a user’s perspective) and on what marketplace participants view as typical and normal market conditions.

The public’s expectation that a market value appraisal reflects only the perspective of the marketplace, and is not affected by such other criteria as an intended user’s objectives, is important. Meeting this expectation serves to foster and promote public trust in professional appraisal practice, a fundamental purpose of the Uniform Standards of Professional Appraisal Practice and one that applies to all work performed under USPAP. (USPAP AO-22)

Why is market value such an important type of value? Because it refers to a price that a seller can expect to receive from a buyer in an open and fair transaction. Knowing the market value of a property allows a would-be seller to determine an asking price. Without knowing the market value, the seller might price their property too high or too low, either of which could have negative financial results (possibly on the seller as well as on the buyer).

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Market Value vs. Fair Market Value: What’s the Difference?

Posted on by Dave Maloney

Market Value vs. Fair Market Value: What’s the Difference? 

(This is the 1st of a 3-part article | Part 2 | Part 3)

(by David Maloney) There seems to always have been confusion regarding the term “market value” and how it relates to “fair market value.” Given the inconsistent manner in which terms are used within the appraisal profession, it is not surprising that such confusion exists. There is “market value” itself, but there are also various “types” of market value such as “fair market value” and “orderly liquidation value.” But there are also types of value that are NOT market value types such as “replacement value” and “forced liquidation value.” 

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Misuse of Terms “USPAP Certified Appraiser” and “USPAP Certified Appraisals” Threatens Public Trust

Posted on by Dave Maloney

Misuse of Terms “USPAP Certified Appraiser” and “USPAP Certified Appraisals” Threatens Public Trust

(by David Maloney) There appears to be a growing use by appraisers of two USPAP-related terms which might be construed as being misleading, thus this caution.

In the first instance, an appraiser refers to him or herself as being a “USPAP Certified Appraiser.” In the second case, the appraiser states that he or she offers “USPAP Certified Appraisals.”

According to John Brenan, Director of Research and Technical Issues at The Appraisal Foundation, “The Appraisal Foundation does not certify appraisals or appraisers.” This alone should give one pause for using the two questionable terms, but there are additional reasons as well.

The Ethics Rule of USPAP prohibits advertising in a “false, misleading or exaggerated manner.” Doing so, of course, endangers public trust in the appraisal profession — and recall that maintaining the public’s trust is the primary reason for the development of USPAP in the first place. In addition, during deposition or testimony the opposing attorney might take an appraiser to task for promoting him or herself as being a “USPAP Certified appraiser” or offering “USPAP Certified appraisals” when The Appraisal Foundation itself has stated that no such type of appraisers or appraisals exist.

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IRS Appraisal Symposium: FMV Requires Use of “Most Common” Market

Posted on by Dave Maloney

IRS Appraisal Symposium: FMV Requires Use of “Most Common” Market 

(by William Novotny Sept. 2008) The Los Angeles Chapter of the ASA recently sponsored an IRS symposium entitled Practicing Before the IRS – A Guide for Personal Property Appraisers at the Atrium Hotel in Irvine, CA. 

The symposium was well-attended and featured four key IRS speakers and Joy Berus, an attorney specializing in art law. From the IRS were Brenda Woolbert, CPA, CVA (Team Manager for the IRS Engineers and Appraisers office in Laguna Niguel, CA); Michael Zarefsky, Esq., CPA, IRS Attorney – Advisor; Susan Kassell, Esq. (Senior Counsel in the IRS Office of the Associate Chief Counsel, Income Tax & Accounting, Washington, DC) and Karen Carolan (Chief, Art Appraisal Services, Chair, Commissioner’s Art Advisory Panel Department of the Treasury, IRS, Washington, DC). Topics included the appraiser’s responsibilities, the requirements for estate and charitable contribution appraisals, IRS proposed changes and appraiser qualifications. 

Though familiar with the complexity of IRS regulations, participants were surprised to learn that there are 243 sections of the IRS Code regarding the use of fair market value. There are over 15 million tax returns filed annually in which taxpayers have valuation issues. As might be expected, abuses and disputes regarding valuations occur. 

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Appraisal Report Templates: Help Ensure Completeness, Professionalism

Posted on by Dave Maloney

Appraisal Report Templates: Help Ensure Completeness, Professionalism

(by William M. Novotny, ISA AM, GCA and David J. Maloney, Jr., AOA CM) The appraisal report is the appraiser’s final work product. Documenting the appraisal investigation to various degrees of detail depending on the report type (self-contained vs. summary vs. restricted use), the appraisal report provides structure and a foundation for the appraiser’s opinion so that it can be properly understood when read by the client and other intended users. Many appraiser opt to make use of appraisal templates to help ensure complete and professional appraisal reports while at the same time minimizing time spent wasted on repetitive report writing tasks.

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Inspecting the Subject Property: At Times Inspections are Unnecessary or Impossible to Perform

Posted on by Dave Maloney

Inspecting the Subject Property: At Times Inspections are Unnecessary or Impossible to Perform

(by Dave J. Maloney, Jr., AOA CM) The primary reason for an appraiser to personally inspect a property is to gather information about the characteristics of the property that are relevant to its value. (In general, these are referred to as relevant property characteristics and consist of quality characteristics as well as value-relevant attributes of the property.)

But is a personal inspection by the appraiser required to gather the necessary information? The answer is “No” (though it is advised whenever possible.)

Though appraisers almost always conduct a hands-on inspection of the property which is the subject of the appraisal assignment, on some occasions such as in the case of a theft or loss, the property is no longer available for inspection. In such cases, a personal inspection simply is not possible. On other occasions, the high cost or risk of loss of shipping a valuable property to the specialist appraiser for examination might necessitate an appraisal being conducted without the benefit of a personal inspection. For items that remain available for inspection and which require special testing procedures or equipment to prove genuineness or quality, or which require authentication, or which are potentially so valuable as to warrant the expense of a hands-on inspection, the specialist appraiser should insist that arrangements be made for a personal inspection either by him/herself or by some other qualified appraiser. Otherwise, the appraiser should abandon the assignment.

The following discussion addresses USPAP’s requirements regarding the appraiser’s responsibility regarding “identification.”

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