"Just Give Me the FMV"
If you've been appraising equipment for more than a year, you've gotten this call. A loan officer — usually someone who handles real estate most of the time — needs an equipment appraisal for a commercial loan. They send over a one-paragraph scope:
"Please provide Fair Market Value of all machinery and equipment located at the facility."
Sounds straightforward. Except it's probably the wrong value premise for what they're actually trying to do.
This happens constantly. Not because lenders are careless, but because "Fair Market Value" has become a catch-all term outside our profession. In everyday business language, FMV just means "what's it worth?" But in appraisal practice, value premises have specific definitions with significant implications for the final number.
The difference between FMV and OLV on a well-equipped machine shop can be 30-50%. Getting the premise wrong doesn't just affect your report — it affects the lending decision built on top of it.
Definitions That Actually Matter
Let's cut through the textbook language and talk about what these mean in practice.
Fair Market Value (FMV)
The price a willing buyer would pay a willing seller, both having reasonable knowledge of relevant facts, neither under compulsion. The asset is assumed to be sold in its current market — meaning a buyer who actually wants to use the equipment.
In plain terms: what would this machine sell for if you listed it through a dealer or private sale to an end user, with reasonable marketing time?
Orderly Liquidation Value (OLV)
The estimated gross amount that could be realized from a sale, given a reasonable period to find a purchaser, with the seller being compelled to sell on an as-is, where-is basis.
In plain terms: the owner has to sell, but they have time to do it properly. Think a planned business closure where equipment is sold off over 90-120 days through an auction house or dealer network.
Forced Liquidation Value (FLV)
The estimated gross amount that could be realized from a properly advertised and conducted public sale, with the seller being compelled to sell with a sense of immediacy.
In plain terms: everything goes in a single auction event. The auctioneer sets a date, runs the ads, and whatever it brings is what it brings. Typically 60-75% of OLV depending on asset type and market conditions.
Fair Value In-Place (FV-IP)
The value of the equipment as installed, including installation costs, as part of an operating facility. This assumes continued use in the current business.
In plain terms: the value reflects not just the machine but the cost of getting it there — rigging, installation, foundation work, utility connections. Relevant for insurance and certain corporate transactions.
When Each Premise Is Appropriate
This is where the conversation with your client matters.
FMV is appropriate when:
- Valuing equipment for a purchase/sale transaction between willing parties
- Estate and gift tax appraisals (IRS generally expects FMV)
- Divorce proceedings where assets will likely be sold individually
- Donation appraisals (IRS Form 8283)
OLV is appropriate when:
- A lender needs collateral value for a term loan (this is the most common banking use case)
- Evaluating recovery value in a potential default scenario
- SBA lending (SBA SOPs specifically reference liquidation value for equipment collateral)
- ABL (asset-based lending) advance rate calculations
FLV is appropriate when:
- Worst-case scenario collateral analysis
- Bankruptcy proceedings where time pressure is real
- Distressed sale situations
- Conservative underwriting stress tests
FV-IP is appropriate when:
- Insurance replacement cost analysis
- Going-concern business valuations where equipment won't be separated
- Corporate mergers and acquisitions
- Property tax appeals (in some jurisdictions)
The Real-World Problem
Here's what actually happens. A commercial loan officer is putting together a deal for a $3M equipment line of credit. They call you and say they need FMV because that's the term they know.
But what they're actually trying to determine is: if this borrower defaults and we need to recover our collateral, what can we get for this equipment?
That's not FMV. That's OLV (or sometimes FLV, depending on the bank's risk appetite).
Consider a 2020 Haas VF-4SS vertical machining center in good condition:
- FMV: ~$120,000 (end user willing buyer/willing seller)
- OLV: ~$85,000 (orderly liquidation, as-is where-is)
- FLV: ~$65,000 (single-event auction)
If the loan officer uses your FMV number to set the advance rate at 80%, they're lending $96,000 against collateral that might only bring $85,000 in a realistic recovery scenario. That's an underwater loan on day one — and nobody wants that phone call.
How to Have the Conversation
This isn't about correcting a client. It's about protecting them. Here's how to frame it.
Don't say: "You asked for the wrong value type."
Do say: "I want to make sure the appraisal gives you exactly what you need for the credit decision. Can you tell me how you'll be using the values? That helps me apply the right value premise under USPAP."
Most loan officers will say something like: "We need to know what we can recover if the borrower defaults." That answer tells you everything — they need OLV, not FMV.
A Practical Script
Loan officer: "We need an FMV appraisal of the equipment."
You: "Happy to help. Quick question — is this for collateral support on a loan? Or is the equipment being bought/sold in a transaction?"
Loan officer: "It's collateral for a term loan."
You: "Got it. For collateral purposes, most lenders find Orderly Liquidation Value more useful than Fair Market Value. OLV reflects what the equipment would bring in a recovery scenario, which is typically what your credit committee needs for advance rate calculations. I can provide both FMV and OLV in the report if you'd like the full picture. Want me to check with your credit team on their preference?"
Nine times out of ten, they'll either confirm OLV or come back after checking with credit and say yes, OLV is what they actually need.
The Appraiser's Responsibility
This isn't just good client service. USPAP requires the appraiser to identify the type and definition of value being developed. You can't just accept "FMV" without confirming it aligns with the intended use of the appraisal.
If a lender asks for FMV and you deliver FMV without questioning the intended use, and the bank later discovers the collateral is worth 30% less in a liquidation scenario, you haven't technically made an error. But you've missed an opportunity to add real value — and you might not get the next engagement.
The best M&E appraisers don't just provide numbers. They ask the right questions upfront so the numbers actually serve the purpose.
Other Common Mismatches
SBA 7(a) loans: Lender asks for FMV, but SBA SOPs reference liquidation value. Flag it before you start.
Insurance: Client asks for FMV when they need replacement cost or FV-IP. FMV would underinsure them.
Divorce: Attorney requests "liquidation value" but the practice is continuing — one spouse buying out the other. FMV or FV-IP is more appropriate.
Estate tax: Executor asks for OLV because they plan to sell. The IRS expects FMV regardless of the executor's plans.
The Bottom Line
Knowing the definitions is table stakes. Every credentialed appraiser can recite FMV vs. OLV vs. FLV. The skill that separates experienced M&E appraisers is having the conversation before you start — making sure the value premise matches the intended use.
It takes two minutes on the phone. It can save your client from a flawed credit decision and save you from a report that technically answers the wrong question.
When someone says "just give me the FMV," treat it as the start of a conversation, not a scope instruction.
Jared Lukes is the founder of Appraisal Dream, building AI tools to help M&E appraisers work faster without cutting corners.