Fair Market Value Purchase Option

A A A

DEFINITION

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

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 Extension

    A legal agreement that extends the term of a rental agreement. The lease extension ...
  2. Lease Balance

    The amount of money that a customer owes under the terms of a vehicle lease ...
  3. Lease

    A legal document outlining the terms under which one party agrees to rent property ...
  4. Leveraged Lease

    A lease agreement that is partially financed by the lessor through a third-party ...
  5. Closed-End Lease

    A rental agreement that puts no obligation on the lessee (the person making ...
  6. Open-End Lease

    A rental agreement that obliges the lessee (the person making periodic lease ...
  7. Walk-Away Lease

    A common type of car lease in which the lessee returns the car at the end of ...
  8. Spot Rate

    The price that is quoted for immediate settlement on a commodity, a security ...
  9. Investment Bank - IB

    A financial intermediary that performs a variety of services. These include ...
  10. Closing Cross

    A price discovery mechanism on the Nasdaq that crosses buy and sell orders at ...
Related Articles
  1. Top 10 Ways To Get Top Dollar For Your ...
    Personal Finance

    Top 10 Ways To Get Top Dollar For Your ...

  2. 12 Car Insurance Cost-Cutters
    Budgeting

    12 Car Insurance Cost-Cutters

  3. Wheels Of A Future Fortune
    Home & Auto

    Wheels Of A Future Fortune

  4. New Wheels: Lease Or Buy?
    Home & Auto

    New Wheels: Lease Or Buy?

  5. Beginner's Guide To Auto Insurance
    Options & Futures

    Beginner's Guide To Auto Insurance

  6. The True Cost Of Owning A Car
    Insurance

    The True Cost Of Owning A Car

  7. Your Car: Fixer-Upper Or Scrap Metal?
    Options & Futures

    Your Car: Fixer-Upper Or Scrap Metal?

  8. How The Sarbanes-Oxley Era Affected ...
    Fundamental Analysis

    How The Sarbanes-Oxley Era Affected ...

  9. Want To Sell Life Insurance? Read This ...
    Entrepreneurship

    Want To Sell Life Insurance? Read This ...

  10. Designated Market Maker
    Investing Basics

    Designated Market Maker

comments powered by Disqus
Hot Definitions
  1. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  2. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  3. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  4. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
  5. Balanced Investment Strategy

    A portfolio allocation and management method aimed at balancing risk and return. Such portfolios are generally divided equally between equities and fixed-income securities.
  6. Negative Carry

    A situation in which the cost of holding a security exceeds the yield earned. A negative carry situation is typically undesirable because it means the investor is losing money. An investor might, however, achieve a positive after-tax yield on a negative carry trade if the investment comes with tax advantages, as might be the case with a bond whose interest payments were nontaxable.
Trading Center