The standard of value of fair market value is very familiar to attorneys and appraisers and often the subject of apparent disagreement. This post looks at the standard definition of fair market value and then breaks it down into its component parts as they relate to hypothetical willing buyers and sellers. Fair market value occurs at the intersection of negotiations between these two sets of hypothetical parties. First, we must understand the meaning of fair market value. Next, we must ask the follow-up question: the fair market value of what? We investigate the relationship of the definition of fair market value and the asset(s) to which the definition pertains.

If your company or your clients’ companies have formula pricing for their buy-sell agreements, the likelihood of future problems is high. It is just not possible to foresee all possible future circumstances when setting a formula today. The solution to these problems lies in a Single Appraiser, Select Now and Value Now valuation process.

Many buy-sell agreements will fail to deliver the fair market value of interests sold following trigger events, even if the valuation of the interests are exactly on point. I’ve written briefly about this topic before, but provide elaboration here.

In this post’s video, I briefly address the definition of disability in a real buy-sell agreement, explain why it will not work if there is a trigger event, and offer an objective suggestion to avoid problems with the definition.