Definitions of Value

There are a number of definitions of value regularly used by machinery and equipment appraisers. The definitions of value below are the ones used most frequently and most are based on the definitions published by the American Society of Appraisers’ Machinery and Technical Specialties committee in Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery and Technical Assets (Fourth Edition)

Additional special purpose definitions for equipment appraisals are used for some accounting, insurance, and condemnation appraisals, including replacement cost new, reproduction cost new, salvage value, scrap value, actual cash value, and a number of others. Which definitions to use for each appraisal varies, depending on applicable laws and client needs.

Fair Market Value

Fair market value is an opinion expressed in terms of money, at which the 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 reasonable knowledge of relevant facts.

This is considered synonymous with “market value” and is based on the Internal Revenue Service definition in IRS Revenue Ruling 59-60 and the following U.S. Regulations: 26 CFR 1.170A-1 – Charitable Donations, 26 CFR 20.2031-1(b) – Estate Tax, and 26 CFR 25.2512-1 – Gift Tax.

Fair market value is applied under a premise of value, which is the set of assumptions that fits the appraisal’s intended use. The same definition can describe assets valued in place and installed, assets valued for removal to another location, or assets valued for continued use where they operate. The appraiser identifies the premise that applies and explains it in the report, so the intended users understand how the value was reached.

Typical uses: Bank loans & financing, sales of assets, charitable donation, property (ad valorem) taxes, insurance, estate planning.

Orderly Liquidation Value

Orderly liquidation value is an opinion of the gross amount, expressed in terms of money, that typically could be realized from a liquidation sale, given a reasonable period of time to find a purchaser (or purchasers), with the seller being compelled to sell on an as-is, where-is basis, as of a specific date.

This premise of value reflects the sale of an asset by a motivated seller after an adequate marketing period to sell the property.

Typical uses: Bank loans & financing, property transfer, insurance.

Forced Liquidation Value

Forced liquidation value is an opinion of the gross amount, expressed in terms of money, that typically could be realized from a properly advertised and conducted public auction, with the seller being compelled to sell with a sense of immediacy on an as-is, where-is basis, as of a specific date.

Typical uses: Bank loans & financing, property transfer, insurance, business liquidation.

Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This is the definition adopted by the Financial Accounting Standards Board in Accounting Standards Codification (ASC) 820, Fair Value Measurement, and by the International Accounting Standards Board in International Financial Reporting Standard (IFRS) 13, Fair Value Measurement.

Typical uses: Purchase price allocation, financial reporting.