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.

BREAKING DOWN '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. Open-End Lease

    A rental agreement that obliges the lessee (the person making ...
  2. Capitalized Lease Method

    An accounting approach that identifies a company's lease obligation ...
  3. Fair Value

    The estimated value of all assets and liabilities of an acquired ...
  4. Closed-End Lease

    A rental agreement that puts no obligation on the lessee (the ...
  5. Level 3 Assets

    Assets whose fair value cannot be determined by using observable ...
  6. Land Lease Option

    An option within a lease contract that grants the lessee the ...
Related Articles
  1. Managing Wealth

    What is a Capital Lease?

    A lease considered to have the economic characteristics of asset ownership.
  2. Investing

    How Does an Operating Lease Work?

    Operating lease is a term used mostly in accounting to denote a lease that gives the lessee rights to use and operate an asset without ownership.
  3. Managing Wealth

    Why You Should Buy A Car Instead Of Leasing

    While leasing has certain advantages, buying a car tends to save you money in the long run and offers greater flexibility.
  4. Managing Wealth

    When Is Leasing A Car Your Best Bet?

    Leasing a car isn't right for everyone. But it's attractive for those who want low initial payments and the ability to get a new vehicle every few years.
  5. Personal Finance

    Is There a Way to Get Out of Your Car Lease Early?

    For those who no longer want their car for whatever reason, transferring the lease to an interested party can be a particularly appealing choice.
  6. Personal Finance

    What Are the Costs of Leasing Vs. Buying a Car?

    The cost difference between buying versus leasing a vehicle can be tens of thousands of dollars over a lifetime
  7. Retirement

    Retirees: Should You Buy or Lease Your Car?

    To buy or lease – that is the question. For retirees, access to safer cars, comprehensive warranties and tax deductions may drive up leasing's appeal.
  8. Managing Wealth

    Rent-To-Own Homes: How The Process Works

    Here's what to watch for when negotiating a contract for a rent-to-own home – and who is a good candidate for this option.
  9. Investing

    Assessing Bank Assets: Are Your Savings Safe?

    Learn how to determine if your assets are safe or if your bank has spread itself too thin.
  10. Trading

    What Is Option Moneyness?

    Get the basics under your cap before you get into the game.
RELATED FAQS
  1. Why are the fair value accounting rules controversial?

    Find out about the controversial points to fair value trading, ranging from historical concerns to more modern issues in ... Read Answer >>
  2. When is market to market accounting performed?

    Discover when mark to market accounting is performed, to what assets it is applied, and how frequently it must be applied ... Read Answer >>
  3. What is the importance of residual value in an automobile lease?

    Find out how dealerships assign residual value and why this is an important factor in car leases. Learn about a tactic some ... Read Answer >>
  4. How have low interest rates affected lease rates in the automotive sector?

    Find out how and why lower interest rates for leasing new automobiles have helped spur more consumers to lease cars instead ... Read Answer >>
  5. What are the most common instances to use hire purchases in a small business?

    Learn when to use a hire purchase to manage the cost of high-dollar business assets so your company can reach its full potential ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  5. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  6. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
Trading Center