Standard of Value

The definition of value used by a business appraiser when appraising a business, such as fair value, fair market value, market value, investment value, strategic value, etc.

See Also

Fair value, fair market value, market value.

Example

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.

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, such as when buying and selling a business.

Related Resources

Business Valuation Standards of Value & Fair Market Value