The trading term fair value
A glossary of trading terms from IG sets out two meanings for the term fair value. Generally, it says, the term is used for the worth a broker or an investor puts on a stock. In futures trading, the glossary says, the term can mean a predicted value for a market, shown in what it costs to open a position.
The glossary notes that a company's fair value can be much argued over. A technology company with promise but no profit yet may have fair values that differ between brokers and investors.
“The judgment allowed that land might have no buyer on a given day and still hold value.”
Fair market value for rural land
A rural property write-up from David Carter Property and Livestock describes fair market property value as a rational and unbiased estimate of what an asset of rural land could bring. The figure it has in mind is the one reached in an arm's length transaction, after proper marketing, between a willing buyer and a willing seller who each act knowledgeably and prudently and are under no compulsion.
That value is not the current listing figure nor the amount of the most recent offer, the write-up says. Nor does a year without profit mean the asset is worth nothing. Seasonal and other factors across the Australian rural landscape shape what a property returns in a given year, and such assets still keep a relative value in the market.
The write-up traces the definition to an Australian compensation case from 1907, Spencer v The Commonwealth of Australia. Griffiths CJ, it reports, framed the test as what a person wanting to buy the land would have had to pay that day to a seller willing to sell at a fair figure but not eager to part with it. The judgment allowed that land might have no buyer on a given day and still hold value.
Records that support a value
The write-up says experienced investors look at standard investment indicators, such as the percentage of net return on capital. It also puts weight on records, which in its telling show what a rural property can do. Livestock operations are expected to keep detailed records of stocking rates, by class of livestock and by number. Farming enterprises are expected to keep data on crop performance, seasonal conditions, shifts in commodity values, and the advantages or drawbacks of a location.
Timeline
One thread, knotted at each year: the distance between knots is the time between events.
Questions
What is fair market value?
One rural property write-up uses the phrase for a rational and unbiased estimate of what a land asset could bring, reached in an arm's length transaction between a buyer and a seller, each willing. A trading glossary from IG uses the term fair value, generally for the value a broker or investor puts on a stock, and in futures for a predicted market value.
How does fair market value work?
The value is treated as what a willing buyer and a willing seller would settle on after proper marketing, rather than the listing figure or the latest offer. One account notes that a year without profit does not automatically mean an asset has no value. Seasonal factors can shape what a property returns in any one year.
How is fair market value worked out for a farm?
One account puts weight on records: stocking rates by class of livestock and number for livestock operations, and crop performance data, seasonal conditions, movements in commodity values and location advantages or drawbacks for farming enterprises.
What does fair value mean in futures trading?
A glossary of trading terms from IG says that in futures trading the term can refer to a predicted value for a market, as shown in what it costs to open a position.
Why can two investors value the same company differently?
IG notes that a company's fair value can be much debated, and that a technology company with promise but no profit yet may have fair values that differ between brokers and investors.