What Does Minimum Price Mean?
Perceived Risk vs. Actual Risk of Speaking Up Counter to the Status Quo?

What is "Fair Market Value" at a Fundraising Auction?

An upcoming fundraising auction informed me that they intend to use the term “Fair Market Value” as part of their auction pricing structure.

This term - "Fair Market Value" -  was a huge surprise.   Frankly, I had never heard of it in art auction, it confused me and gave me great cause for concern.  I wondered why would they use the term "Fair Market Value" instead of the much more familiar "Retail Price?"

I wonder... 

Has anyone ever heard the term “fair market value” when pricing art or craft?

Have you ever seen the term "Fair Market Value" used at a Fundraising Auction?

I’d like to hear your comments or opinions about the term "Fair Market Value" under the given circumstances. 

Your comments and reply are most welcome.

  Shopping-cart-Fair-Market-Value-Gavel

Background surrounding the circumstances.
I had never heard of the term "Fair Market Value" used instead of "retail price" in a art/craft retail context
 and it leaves me concerned that the use of this term sets an awkward and misleading precedent.

Then of greater concern, the sponsor also said that they intend to use an automatic formula to calculate "Fair Market Value."  In the original invitation, artists were asked to state a specific price as the artist's "minimum price," however, the term "minimum price" was never defined, and the artists were not informed how the "minimum price" would be used as a factor to automatically calculate a "Fair Market Value" as 3 times the artist's "minimum price."   

 Minimum-price-fair-market-value

It is as if the auction sponsor believes that every artist is identical and the pricing of every work is reduced to a fixed formula -- with no prior knowledge of the artist's comparable prices for similar work. 

Using the term "Fair Market Value" at an auction has further irony when you consider that most Fundraising Auction sell artwork at below normal retail prices potentially eroding  the "Fair Market Value" for all work by the artist.  

 

If you are not familiar with the term Fair Market Value, a description of this economic term is provided below.

"What does Fair Market Value mean?"
For this question, I pursued some diligent research and asked a qualified, entrepreneurial, business expert, my husband, to provide further insight into the term. 

To define the term "Fair Market Value" we need to differentiate between a liquid market and an illiquid market." 

“Fair Market Value” is easily determined in a liquid market when there are multiple identical items sold repeatedly, such as gallons of gas or mass manufactured items. Thus the transaction price of multiple purchases indicates the Fair Market Value.  Common examples include the real estate market, valuation of cars, and stocks.

FMV_large-for-blog.001-300x225This rather pedestrian description of "Fair Market Value" was taken from a website that focused on appraisals of machines and equipment."...the consensus was that the “fair” part of “fair market value” is redundant. Market Value, by definition, is impartial, honest and legitimate."

“Fair Market Value” is not easy to determine when selling an item that has never sold before such as one-of-a-kind art or craft. When there is a very small, very limited market (i.e. with no previous retail sales of identical items), the situation can be described as an illiquid market. When selling art or craft, "Assets in illiquid markets still have value and, in many cases, very high value, but are simply difficult to sell."  In such circumstances, an estimate of Fair Market Value may be reasonably determined by negotiation, or an impartial third party, a gallery that represents the artist/maker or a qualified appraiser. 

  Never-Let-Your-Eyes-deceive-Truth

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