Standard of Value

Definition

The type of valuation that is used by a business appraiser when appraising a business.

Examples

Different standards (or definitions) of value include:

  • Fair market value: The value at which a property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having a reasonable knowledge of relevant facts, as of a specific date.

  • Market value: The most probable price, as of a specified date, in cash, in terms equivalent to cash or in other precisely revealed terms, that the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale. The buyer and seller cannot be under undue duress and must act prudently, while being knowledgeable of all the facts.

  • Investment value: The value of a property to a particular investor.

See Also

Market value, fair market value, fair value, investment value.

Tips

Standards of value are a critical component of a business appraisal for legal purposes, such as a divorce or bankruptcy. The standard of value that is selected can have a tremendous impact on the value of a business. Standards of value are defined by a few different organizations, including the Uniform Standards of Professional Appraisal Practice (USPAP) and The Appraisal Institute. Standards of value are not as important when valuing a business for non-legal purposes (e.g., buying and selling a business).