Market value, fair value, and duress

John Dorchester

Journal of Property Investment & Finance, 2011, vol. 29, issue 4/5, 428-447

Abstract: Purpose - This paper seeks to consider a significant market misconception and related errors commonly made by valuers, financial decision makers, and other users of valuation services. Its purpose is to focus on the importance of relating the explicit requirements of market value and fair value definitions to the evidence required for a supportable opinion of either. Design/methodology/approach - The paper provides conceptual foundations for the terms “market value” and “fair value” and reviews their meanings and applications in a historical context. Business cycles and the recent recession are used as foundations for illustrating how prices, such as for real estate, vary with cycles, but are not always directly indicative of either market value or fair value. The latter term has a long history, but has undergone recent definition and revision by the US Financial Accounting Standards Board (FASB) that are shown to closely align fair value with market value. A current controversy over the use of transactions as prima fascie, or perhaps the only indication of market value is discussed and the “market” of “market value” is examined. Findings - The paper offers a new look at market evidence concepts that are time‐honored, yet have been largely lost or forgotten. The principal finding is that duress is not consistent with conventional definitions of market value or fair value, yet significant market evidence exists that duress is often ignored or improperly considered in valuations and financial decisions. The paper also concludes that the FASB's focus on “market participants” (sellers and buyers) as the prime source of Fair Value evidence is akin to the rules which have applied to market value for many decades. The paper concludes with a discussion of why transactions may be evidence of “a market,” but are not necessarily representative of the “market” or of fair value. Originality/value - Market Value is a market protection against fraud, misrepresentation, and misunderstanding. Valuations must be performed in accordance with that definition – not as it is interpreted for personal gain or for any other interpretations of convenience, misunderstanding, or special purpose.

Keywords: Market value; Fair value; Market price; Real estate valuation; Valuation; Financial decision making; Duress; Market transactions and value (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jpifpp:v:29:y:2011:i:4/5:p:428-447

DOI: 10.1108/14635781111150321

Access Statistics for this article

Journal of Property Investment & Finance is currently edited by Nick French

More articles in Journal of Property Investment & Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().