What is Fair Market Value?
There are several different kinds of values which appraisers talk about. Most often during the course of a settlement, you run across the term ACV, or Actual Cash Value. Before proceeding, we should review the different types of values and what they represent.
Fair Market Value
A legal term meaning "the highest cash or equivalent price estimated in terms of money which property would bring if exposed for sale in the open market place, with reasonable time allowed in which to find a purchaser buying with full know-ledge of its uses and purposes to which it is adapted and to which it is capable of being used, and neither buyer or seller being under any compulsion to buy or sell. The most probable buy-sell price would be its insurable value."
What we understand as being stated here is this: Fair Market Value and Insurable Value are the same. This usually represents the highest price that an article will bring on the open market with no pressure to buy or sell. The key element here is the time required to achieve the sale.
Actual Cash Value
An insurance term that usually means the sum of money required at the time of loss, to acquire a similar vehicle, as the property destroyed, less any appropriate depreciation for previous use. This is also considered the retail fair market value.
This represents the value which the insurance company will pay to replace your vehicle. It is deduced that this value represents the value of your vehicle at the time of the loss. This value is found by locating comparable vehicles for sale, preferably in or around your local area.
What's the Catch?
The catch is in the term “comparable vehicle” which may or may not be a fair representation of your vehicle at the time of loss. The values generated by the insurance company to settle your claim are done by 3rd party companies hired by the insurance company solely for this purpose. They work only off the information provided by the insurance company claims handler and utilize a large data base of sold or for sale vehicles which are available near your area.
There are 2 problems with this “convenient” solution which the insurance company uses:
- They rely on the possible inaccurate information supplied by the insurance company
- The condition of the “comparable” vehicles is not known
As we have stated somewhere in this convoluted website, we had occasion to run AutoCheck© reports on several vehicles which were used to determine a value on a settlement which we felt was extremely low. As it turned out, two vehicles were hurricane Katrina victims and one had been run through the local wholesale auto auction several times!
The only acceptable way to actually determine the Retail Fair Market Value (ACV) is to locate truly comparable vehicles for sale, make adjustments to the asking prices based on options, known condition and mileage adjustments. There should NEVER be a sales “discount” figure subtracted to obtain the ACV. We have seen this done time and time again; the valuation report suggesting that the seller had to discount the price to sell the vehicle. This is not legal and should never be done…period!
A Certified Appraisal performed by Ready2Appraise will provide an ACV which will accurately reflect the true value of your car.
Types of Vehicle Values
The following values represent special case scenarios and are seldom used in the normal appraisal process:
Liquidation Value: An impending sale with limited conditions. An orderly liquidation is planned disposal with price consideration. A forced liquidation is immediate disposal without price consideration. An absolute auction has no reserve price.
Replacement Value: A term used when describing the cost to replace an automobile in the exact or equivalent condition and with the same components, less any depreciation due to use or deterioration. This would include cost of custom fabrication, upgrading and any modification cost to duplicate the appraised automobile.
Salvage Value: Parts value without consideration of the specific vehicle the parts came from or the value of the damaged vehicle as is.
Hypothetical Value: The value of stolen or damaged vehicles, which are not always available for physical inspection, based on assumed conditions, sometimes contrary to fact, with limiting conditions.
Reconstructive Value: A vehicle's value in pre-accident condition is estimated, based on its post-accident condition with applicable limiting conditions.
Provenance or Historical Value: An additional value assigned to a vehicle above its market value due to proven ownership, association, publication, manufacture, show and/or racing history.