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 FAQS
  1. What are the different types of price discrimination and how are they used?

    Price discrimination is one of the competitive practices used by larger, established businesses in an attempt to profit from ... Read Full Answer >>
  2. What is the theory of asymmetric information in economics?

    The theory of asymmetric information was developed in the 1970s and 1980s as a plausible explanation for common phenomena ... Read Full Answer >>
  3. How does the combined ratio measure the financial health of insurance companies?

    The combined ratio measures the profitability of an insurance company by examining its earned premium from its policyholders ... Read Full Answer >>
  4. Which markets are most prone to market failure from adverse selection?

    Adverse selection causes market failure -- a sub-optimal level of beneficial trades -- whenever material information cannot ... Read Full Answer >>
  5. How does adverse selection affect insurance premiums?

    Any limits on an insurance provider's ability to appropriately price risk – to economize on important information – might ... Read Full Answer >>
  6. How does adverse selection contribute to market failure?

    Adverse selection is perhaps the most academically cited example of market failure in a laissez-faire economy. The problem ... Read Full Answer >>
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. Economics

    Understanding Marginal Benefit

    Marginal benefit is an economic term that describes the maximum amount a consumer is willing to pay for an additional unit of a good or service.
  9. Investing Basics

    Methods To Estimate The Cost Of A Local Restaurant

    Here are key factors to consider, and helpful formulas to use, to assess how much a local restaurant would likely be sold for, if you're a possible buyer.
  10. Investing

    4 Hottest IPOs in 2015

    Where is smart money headed this year? These are the most anticipated IPOs of 2015.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center