The type of valuation that is used by a business appraiser when appraising a business.
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.
Market value, fair market value, fair value, investment value.
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).