Buying and selling of properties is one of the leading businesses in all over the world. However, when we get involved in such type of trade, we realize that it is not as simple as looks from outside. There are many technical terms involved in property business. Fair market value and book value are the names of such technical terms related to property business, but very confusing in their meanings. Let’s see the difference.
Fair Market Value
The estimation of a property’s market value that is based upon the will and knowledge of buyer on behalf of will and knowledge of seller is known as FMV or Fair market value. You can say that estimation of FMV is based upon precedent. This fair market value could be diverse intrinsic value of same property.
Book Value
When we estimate the value of any asset in accordance to its balance sheet or account balance, this value is known as book value that is a technical term in accounting. The book value of any asset is in fact, its original value. However, any impairment or depreciation must be not included in this original value. You can say that the book value of any company reflects its total assets after redacting the liabilities and intangible assets. The book value of any company shows its goodwill as well.
Fair Market Value vs Book Value
The crystal clear difference between fair market value and book value is that, former is the estimation of market value of any asset that is being demanded in case of selling. However, the actual price that is being paid for that property after reducing the depreciation is the book value of that asset. We can differentiate both accounting terms on behalf of profit and loss as well. moreover, book value does not figure out the replacement cost as in the case of fair market value.
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