Fair Market Value Purchase Option

AAA

DEFINITION of 'Fair Market Value Purchase Option'

The right but not the obligation to buy a leased asset at the end of the lease term for a price that represents the item's then-current worth. The Fair Market Value Purchase Option does not provide the purchase price in advance, but as long as the assessed fair market value is accurate, the consumer will not overpay for the asset and the lessor will not receive less than the asset is worth.

INVESTOPEDIA EXPLAINS'Fair Market Value Purchase Option'

Types of assets that may come with a fair market value purchase option include automobiles, real estate and heavy equipment.


A common alternative to the fair market value purchase option is the fixed price purchase option, which allows the lessee to know for certain what the cost to purchase the property at the end of the lease term will be. Because it is impossible to determine an item's fair market value in advance of the item's purchase date, a purchase price cannot be established in advance with a fair market value purchase option.

RELATED TERMS
  1. Lease Balance

    The amount of money that a customer owes under the terms of a ...
  2. Lease Extension

    A legal agreement that extends the term of a rental agreement. ...
  3. Open-End Lease

    A rental agreement that obliges the lessee (the person making ...
  4. Leveraged Lease

    A lease agreement that is partially financed by the lessor through ...
  5. Lease

    A legal document outlining the terms under which one party agrees ...
  6. Closed-End Lease

    A rental agreement that puts no obligation on the lessee (the ...
Related Articles
  1. Budgeting

    12 Car Insurance Cost-Cutters

    If car costs are dragging you down, find out how to free yourself from some of the extra weight.
  2. Personal Finance

    Top 10 Ways To Get Top Dollar For Your Car

    Find out what steps you can take to reduce the depreciation of your vehicle.
  3. Home & Auto

    Wheels Of A Future Fortune

    Buy a quality car without driving your expenses through the roof.
  4. Home & Auto

    New Wheels: Lease Or Buy?

    These two major ways to obtain a car have very different advantages and drawbacks. Find out which is best for you.
  5. Options & Futures

    Beginner's Guide To Auto Insurance

    Find the perfect policy that suits both your coverage and budgetary needs.
  6. Options & Futures

    Your Car: Fixer-Upper Or Scrap Metal?

    Sometimes buying a new car can be cheaper than shelling out for repairs.
  7. Insurance

    The True Cost Of Owning A Car

    Driving is often the most convenient way to get around, but it'll cost you.
  8. Forex Fundamentals

    How Petrodollars Affect The U.S. Dollar

    We examine the rise of petrodollars, their influence on the USD as a global reserve currency, and their effects on the U.S. markets.
  9. Trading Strategies

    IPO Flippers And The Companies Who Hate Them

    Learn how flipping activity affects an initial public offering.
  10. Budgeting

    The Adverse Effects of Cheap Gas

    While low gas prices are welcomed, smart budgeters must anticipate future price hikes and consider the impact of low gas prices on investments and taxes.
RELATED FAQS
  1. How can I buy shares in the primary market?

    If you want to buy shares in the primary market, you need to either be part of a syndicate or one of the lucky few whose ... Read Full Answer >>
  2. In what ways does government regulation impact the insurance sector?

    Regulation is not consistent among all forms of insurance. The kinds of regulations imposed on AIG for guaranteeing credit ... Read Full Answer >>
  3. How does an underwriter syndicate work together on an initial public offering (IPO)?

    An underwriting syndicate is a group of investment banks that share the responsibility of marketing the shares of a company ... Read Full Answer >>
  4. What are the different ways I can file my income tax return?

    In contractual law, a letter of intent is a document that represents an agreement between parties before the final agreement ... Read Full Answer >>
  5. How do companies use price discrimination?

    Price discrimination is a strategy that companies use to charge different prices for the same goods or services to different ... Read Full Answer >>
  6. What is an indenture for a fixed income security?

    An indenture for a fixed-income security, also known as a bond indenture or trust indenture, is a contract that sets forth ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Nanny Tax

    A federal tax that must be paid by people who hire household help (a babysitter, maid, gardener, etc.) and pay them a total ...
  2. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  3. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  4. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  5. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  6. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!