What is '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.
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