Legal Definitions - clear market value

Clear market value refers to the estimated price at which an asset or property would change hands between a willing buyer and a willing seller. Both parties are assumed to be knowledgeable about all relevant facts, acting prudently, and neither is under any compulsion or pressure to buy or sell. Essentially, it's the most probable price an item would fetch in an open and competitive market.

Here are some examples illustrating clear market value:

• Property Tax Assessment: Imagine a local government needs to determine the property taxes for a residential house. To do this, they assess the house's clear market value. They would look at recent sales of comparable homes in the same neighborhood, considering factors like square footage, number of bedrooms, condition, and any unique features. This valuation assumes the homeowner isn't forced to sell quickly at a discount, and a potential buyer isn't desperate enough to pay an inflated price, thereby reflecting a typical, unpressured transaction in the current real estate market.

• Insurance Payout for a Damaged Vehicle: Suppose a car is involved in an accident and declared a total loss by the insurance company. To compensate the owner, the insurer will determine the vehicle's clear market value just before the accident occurred. They would research the selling prices of similar make, model, year, and mileage vehicles in the local used car market. This value represents what a willing buyer would have paid a willing seller for that specific car under normal market conditions, not a salvage price or a brand-new replacement cost.

• Valuation of a Small Business for Sale: A small bakery owner decides to retire and sell their business. To set a fair asking price, they would seek to determine the bakery's clear market value. This involves an appraisal that considers the business's assets (equipment, inventory), liabilities, historical revenue, profitability, customer base, and market reputation. The resulting value reflects what a knowledgeable and willing buyer would pay a knowledgeable and willing seller for the bakery as an ongoing concern, without either party being under duress or having incomplete information.