In this fourth post in our series on Appraisal Review, we discuss definitions of fair market value. Fair market value is the most common standard of value employed by business appraisers. It is the standard for gift and estate tax and charitable giving matters as well as for many other appraisal requirements involving the federal government. And it is the most frequently used standard of value in buy-sell agreements and in other business arrangements requiring opinions of value. Despite its frequent employment, it is my observation that fair market value is not nearly as well-understood by business appraisers, attorneys, and courts as it should be.

The levels of value chart for business valuation relates the various “levels” of value to one another on a conceptual basis. It was first published in 1990. This chart recognized what the markets and business valuation analysts had roughly understood for some time about “levels” of value of businesses. 

So what do the conceptual levels of value have to do with fair market value and what does all this have to do with appraisal review?  We review two levels of value charts containing three and four conceptual levels, respectively. In an appraisal, it is critical to specify the appropriate level of value. In appraisal review, it is perhaps even more critical to understand appraisal assignments and reach reasonable conclusions regarding the appropriate level of value. How else can a reviewer reach a valid opinion regarding the quality and appropriateness of the work of another appraiser? How else can a reviewer reach a valid opinion regarding the reasonableness of the conclusion of a report under review? And we have not yet attempted to define fair market value.