Fair Market Value vs Replacement Value
One of the most misunderstood aspects of personal property appraising is in defining the value. Because there are different definitions of value, you must understand the purpose of the appraisal before you can really understand which value is appropriate to use. The most commonly used are the Fair Market Value and the Replacement Value.
defined as the price 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. The Fair Market Value of a particular item of
property is not to be determined by a forced sale price. Nor is the
Fair Market Value of an item of property to be determined by the sale
price of the item in a market other than that in which such item is
most commonly sold to the public, taking into account the location of
the item wherever appropriate.
Replacement Value should provide you with an exact or similar replacement if something should happen to your property. Replacement Value is the cost necessary to replace the items being appraised either with:
1) new items of like kind, quality and utility
2) similar items of property of like kind, age, quality, and utility having similar wear and tear, decay or defects, and obsolescence as the items being appraised
3) constructed items to provide an exact replica, using the same materials and construction techniques as the original, by a qualified artist or craftsman.