Legal Definitions - full cash value

Full cash value refers to the estimated amount of money an asset would sell for on the open market, assuming a willing buyer and a willing seller, with neither party under pressure to complete the transaction, and both having reasonable knowledge of the relevant facts. It represents the most probable price an asset would bring in a competitive and open market.

Here are some examples to illustrate this concept:

• Example 1: Property Tax Assessment

  A local government assessor evaluates a residential home to determine its property taxes. The assessor determines the home's full cash value by looking at recent sales of comparable homes in the neighborhood, considering factors like square footage, number of bedrooms, lot size, and condition. If similar homes recently sold for around $500,000, the assessor might set the home's full cash value at that amount. This value then serves as the basis for calculating the homeowner's annual property tax bill.

  How it illustrates the term: The assessor is trying to determine what the house would realistically sell for if it were put on the market today, which is its full cash value, to ensure fair and equitable taxation.

• Example 2: Insurance Claim for a Damaged Vehicle

  After a car is totaled in an accident, the owner files an insurance claim. The insurance company needs to determine the payout amount. They assess the car's full cash value just before the accident by researching the market price for vehicles of the same make, model, year, mileage, and condition. If similar cars were selling for $25,000, the insurance company would offer that amount as the full cash value, rather than the original purchase price or the cost of a brand new replacement.

  How it illustrates the term: The insurance company calculates the car's full cash value to compensate the owner for what the vehicle was actually worth in the open market immediately prior to its destruction, not its original cost or replacement cost.

• Example 3: Business Asset Valuation for Sale

  A small business decides to sell a piece of specialized manufacturing equipment that is still in good working condition but is no longer needed. To set a fair asking price, the business owner researches what similar used equipment has recently sold for from other companies or through equipment brokers. They find that comparable machines, considering age, usage hours, and maintenance history, typically fetch around $75,000. This amount represents the equipment's full cash value.

  How it illustrates the term: The business owner is determining the most likely price the equipment would sell for in the current market, reflecting its true economic worth to a potential buyer, which is its full cash value.