Legal Definitions - fair cash value

Fair cash value refers to the estimated price that a property would likely sell for on the open market. This valuation assumes that both the buyer and the seller are willing to engage in the transaction, are not under any pressure or compulsion to complete the sale quickly, and are both reasonably well-informed about the property and the market conditions.

Essentially, it's the most probable price a property would fetch in a competitive and open market, reflecting an objective assessment of its worth.

• Example 1: Property Tax Assessment

  A city's tax assessor needs to determine the value of a commercial building for property tax purposes. Instead of using the building's original purchase price from decades ago, the assessor researches recent sales of comparable commercial properties in the same area, considering factors like square footage, condition, and amenities. Based on this market data, the assessor assigns a fair cash value of $2.5 million to the building, which then serves as the basis for calculating the annual property taxes.

  This example illustrates fair cash value because the assessment is based on what the property would likely sell for today in an open market, not just its historical cost or an arbitrary figure.

• Example 2: Insurance Claim for Damaged Goods

  A homeowner's antique dining room set is severely damaged in a house fire. When filing an insurance claim, the policy specifies that the payout will be based on the fair cash value of the items immediately before the damage occurred. The insurance adjuster consults with an appraiser who researches recent auction results and sales from reputable antique dealers for similar dining sets, taking into account the age, condition, craftsmanship, and historical significance of the homeowner's set. This research helps establish the fair cash value for the insurance payout.

  Here, fair cash value ensures the homeowner is compensated for what the antique set was actually worth on the market, allowing them to potentially replace it with a similar item, rather than just receiving its original purchase price or a depreciated value.

• Example 3: Business Valuation for Partnership Buyout

  Two partners decide to dissolve their small graphic design firm, with one partner buying out the other's share. To ensure a fair transaction, they hire a business valuation expert to determine the fair cash value of the entire company. The expert analyzes the firm's assets (computers, software licenses), liabilities, client contracts, intellectual property, historical revenue, and future earning potential. They also compare it to recent sales of similar small design firms. The resulting fair cash value helps the partners agree on a just price for the buyout.

  This demonstrates fair cash value by establishing an objective market-based price for the business, ensuring that the departing partner receives a fair amount for their ownership stake as if the business were being sold to an independent third party.