Legal Definitions - true value

True Value refers to the price at which a property or asset would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of relevant facts. It is often used interchangeably with "fair market value." This concept is crucial in various legal and financial contexts, such as property assessment for taxation, estate valuation, or determining compensation in eminent domain cases.

Here are some examples illustrating the concept of true value:

• Example 1: Property Tax Assessment

  Imagine a local government assessing property taxes for a residential home. The tax assessor's goal is to determine the true value of the house. They would consider recent sales of comparable homes in the neighborhood, the property's condition, size, features, and location. The resulting assessment reflects what a typical buyer would likely pay for that home on the open market, assuming both buyer and seller are acting voluntarily and are well-informed.

  This illustrates true value because the assessment aims to capture the objective market price of the property, not a subjective value to the owner or a forced sale price.

• Example 2: Insurance Claim for a Damaged Vehicle

  Suppose a car is declared a total loss after an accident. When the insurance company calculates the payout, they determine the true value of the vehicle immediately before the accident. They do this by researching prices for similar make, model, year, mileage, and condition cars sold in the local market. This figure represents what a buyer would have paid for that specific car under normal market conditions.

  This demonstrates true value as the insurance company seeks to compensate the owner for the car's objective market worth, not its original purchase price or a sentimental value.

• Example 3: Valuation of a Small Business for Sale

  A small bakery owner decides to sell their business. To set an asking price and for potential buyers to make an offer, they need to determine the bakery's true value. This would involve evaluating its assets (equipment, inventory), liabilities, historical financial performance (revenue, profit), customer base, brand reputation, and future earning potential. A business appraiser might compare it to similar bakeries that have recently sold.

  This example shows true value in the context of a business, where the valuation aims to reflect what a knowledgeable, willing buyer would pay for the entire operation, based on its economic realities and market comparisons.