highest price that a marketable asset will bring in an open and competitive market, assuming that both buyer and seller are informed and acting independently. Also called fair market value. In theory, this is the highest price a seller is willing to accept and the lowest price a buyer is willing to pay. It may differ from the appraisal value.
In general: market price-the price at which buyers and sellers trade similar items in an open marketplace. In the absence of a market price, it is the estimated highest price a buyer would be warranted in paying and a seller justified in accepting, provided both parties were fully informed and acted intelligently and voluntarily.
Investments: current market price of a security-as indicated by the latest trade recorded.
Accounting: technical definition used in valuing inventory or marketable securities in accordance with the conservative accounting principle of “lower of cost or market.” While cost is simply acquisition cost, market value is estimated net selling price less estimated costs of carrying, selling, and delivery, and, in the case of an unfinished product, the costs to complete production. The market value arrived at this way cannot, however, be lower than the cost at which a normal profit can be made.
the theoretical highest price a buyer, willing but not compelled to buy, would pay, and the lowest price a seller, willing but not compelled to sell, would accept.
the definition of market value provided by USPAP is:
The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
- buyer and seller are typically motivated;
- both parties are well informed or well advised, and acting in what they consider their best interests;
- a reasonable time is allowed for exposure in the open market;
- payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
- the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.1
Example: An appraisal of a home indicates its market value is $150,000. In a normally active market, the home should sell for this amount if allowed to stay on the market for a reasonable time. The owner may, however, deed the home to a relative for $250. The owner may also grow impatient and sell for $140,000. Conversely, an anxious buyer may be found who pays $160,000. Finally, the owner may provide favorable financing and sell for $170,000.