Difference Between Fair Value and Market value

Fair value is the most used term for valuing an asset. Fair value can be best defined as the value by which an asset changes hands between two parties. It is more likely traced to the fair value of a share price. On the other hand, the market value of assets or anything can be defined as the market’s value for it.

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Fair Value vs. Market Value Infographics

Let’s see the top differences between fair value vs. market value in detail.

Key Differences

  • Market value is not an appropriate method to judge the true value of an asset as it is highly dependent on the forces of demand and supply, which are very fluctuating and are dynamic. On the contrary, fair value is not dependent on the strengths of any market demand and supply and is purely dependent on the asset’s true value.

  • Another significant difference is that the asset’s fair value is always adjusted for impairment because the property arrives at the true value. On the other hand, market value is the value that is determined by the two parties when they meet. After negotiation, they arrive at a price that is not always logically driven and often irrational.The fair value model is often the model of the fundamental valuation of an asset or a company etc. The actual value is the fair value and what the asset should be worth. Market value is decided by the market and is not derived fundamentally.

Fair Value vs. Market Value Comparative Table

Conclusion

Understanding the differences between the fair and the market value is significant, especially in the valuation industry. A valuation firm will try to value the value of an asset through various methods to decide which deal is a close fit for the asset to sell at a price that correctly reflects the asset’s value.

Often for an asset with no open market, determining the asset’s fair value often becomes difficult and costly. However, besides its minor shortcomings, the appropriate valuation methodology supersedes the other valuation methods, and it is usually considered as best practice in the industry.

This article has guided the difference between fair value and market value. Here, we discuss the top 4 differences with infographics and a comparison table. You may also have a look at the following articles: –

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