Be sure to reference Parts I and II:
Part I: Determining Fair Market Value
Part II: Understanding and Determining Fair Market Value in Canadian Appraisals
This list is intended as a practical guide for conducting fair market value (FMV) appraisals in compliance with professional standards, including USPAP. It outlines key steps and considerations for developing well-supported FMV conclusions based on market data. However, this tool is not a replacement for thorough analysis, self-study, or adherence to applicable professional standards and legal requirements. Appraisers must evaluate each assignment individually and ensure that all conclusions are supported by market data. Use of this guidance list does not guarantee valuation accuracy; it is meant to support, not replace, critical analysis and professional discretion.
Note: This guidance list is intended for use when evaluating a single item of personal property.
Step 1: Gather Acquisition/Sales Information
- Ask donor for purchase price, source, and date and include this information in your Body.
- Refer to USPAP Standard Rule 7-5(b): Analyze all relevant prior sales or transfers.
- Refer to USPAP Standard Rule 8-2(a)(x)(3): Summarize relevant sales and transfers of the subject property when necessary for credible results, as required by Standard 7. If such data is unavailable, the appraiser must document their efforts to obtain it; if irrelevant, they must explain why.
- Consider whether this data is relevant to the subject property’s FMV as of the effective date.
Step 2: Understand the Definition of FMV (Both US and Canada)
- FMV = price between willing buyer and seller, with no compulsion to act, and both having reasonable knowledge of relevant facts.
- FMV requires actual completed sales (not asking prices).
- FMV must be determined in the most common market for the item.
- Where are comparable (pre-owned) items sold to the public?
- Where do the most transactions occur?
Step 3: Identify the Most Common Market for the Subject Property
- Compare auction vs gallery sales activity for the item. These are generally the most common marketplaces where pre-owned items are sold to the public. (NOTE: There are exceptions).
- In most cases, one marketplace will yield more results than another. If you believe auction and galleries have an equal number of sales, you must substantiate this with market data.
- Justify your market selection in a market analysis or reasoned justification. Explain to your reader (e.g., intended users) why you chose this marketplace as the most common for the subject property. Use market data, including the number of sold sales in each marketplace.
Step 4: Research Comparable Sales
- Select comparables from the most common market. Do not mix comparables from different markets. (Example of mixed marketplaces: 1 sold comparable from a gallery and 2 sold comparables from an auction).
- Confirm to the best of your ability that sales represent end-user transactions (not a dealer
buying for resale). - Use parallel items in parallel markets if:
- The subject property has no established market (e.g., no sold results).
- Demonstrate understanding of the item’s market by comparing it to similar items with relevant properties to support a defensible opinion. (e.g., local artist with no sales records compared to another local artist with a couple of sales records).
- With parallel market comparables, consider if a discount is appropriate, as an item with a few sales has more of a market presence than the subject property with none.
Step 5: Document and Support Your FMV Conclusion
- Include market data in your report.
- If using expert opinions (e.g., from a gallery), ensure they are credible and supported by data. Unsupported expert opinions are not persuasive and may be unreliable.
- Clearly explain your market research process and why you selected a particular market.
- The mode is often the most persuasive statistical measure because it presents the number that appears most frequently in a data set.
- If the sales are widely dispersed, the mean (average) will likely not produce a credible or defensible value conclusion.
- If needed, make adjustments to comparables for value-relevant characteristics and clearly state how and why these adjustments were made.
- Compare your subject property to each comparable explaining these upward or downward adjustments.
- Including a reasoned justification explaining how the comparables support your FMV conclusion is best practice.
- Comparables do not “speak for themselves.”
- Your analysis may vary in length based on the intended use, determined value amount, and complexity.
This Fair Market Value Guidance List is designed to support appraisers in producing well-reasoned, defensible valuations that reflect real market behavior. While it offers a structured approach grounded in professional standards, it is not a substitute for in-depth research, critical thinking, and professional judgment. Each appraisal assignment presents unique circumstances, and appraisers are responsible for applying this guidance list thoughtfully and in context. When used appropriately, this list can help ensure FMV conclusions are credible, transparent, and aligned with industry best practices.