FMV, OLV, FLV and NOLV: the premises of value, explained

What is a premise of value?

A premise of value is the set of assumptions an appraiser holds about how an asset would sell and over what timeline. Change the assumptions and you change the number, even though the equipment never moves. Every defensible appraisal names its premise on the page so the reader knows exactly which question the value answers. A value reported without its premise cannot be checked.

What is Fair Market Value (FMV) for equipment?

Fair Market Value is the price at which equipment would change hands between a willing buyer and a willing seller, both informed and neither under compulsion, with a reasonable time to market. The IRS uses the same definition in Publication 561: "the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts." FMV assumes the asset stays in its current use. It is the premise behind sales and acquisitions, tax filings, partnership and estate matters, and financial reporting, and it is the highest of the market premises.

What do OLV and FLV mean, and when is each premise appropriate?

Orderly Liquidation Value and Forced Liquidation Value both assume the seller is exiting, not continuing. The difference is the pressure on the clock. The OCC's asset-based lending handbook draws the same line: an orderly liquidation "allows for a brief marketing period, in contrast to a forced liquidation value that is based on an auction sale."

• Orderly Liquidation Value (OLV): the proceeds from a negotiated sale conducted over a reasonable period, with the assets advertised and marketed properly. The seller is winding down but is not desperate. OLV sits below FMV. It is the appropriate premise for a secured loan or an SBA file, where the lender needs the value of the collateral in an orderly exit.
• Forced Liquidation Value (FLV): the proceeds from a sale held under compulsion, typically an auction with little marketing time. The buyer knows the seller has to sell. In finance, FLV is the downside case: workouts, receiverships and bankruptcies. It is the most conservative premise and usually the lowest value.

Where does NOLV fit among the premises?

Net Orderly Liquidation Value is OLV minus the costs of sale: commissions, removal, rigging, freight, storage and the other expenses of turning the equipment into cash. For what the net deducts, how an appraiser calculates it and when a lender asks for it, see NOLV (Net Orderly Liquidation Value): meaning and formula.

Where does Replacement Cost New (RCN) fit?

Replacement Cost New is the cost to replace an asset with a new one of equivalent function. RCN is not a market price and is not used for sale or collateral. It is the premise behind insurance and replacement cost work and certain accounting work, where the question is the cost to make the owner whole, not the price the asset would bring on the open market.

Can the same equipment have different values at the same time?

Yes. Each premise asks a different question, and all the answers can be correct on the same day. The same press has an FMV for the owner who wants to sell it in the ordinary course, an OLV and NOLV for the bank weighing it as collateral, an FLV for the trustee planning an auction, and an RCN for the insurer.

None of these values contradicts the others. They describe different futures for the same asset. The appraisal identifies your situation, selects the premise, and documents the reasoning.

We write for the credit desk. Every premise is named, every assumption is stated, and the support is in the report. The work is signed by a NEBB-certified Machinery & Equipment Appraiser (CMEA) and prepared to withstand lender, SBA, IRS, audit and legal review.

Which premise of value does a loan, sale, tax filing or lawsuit need?

The premise follows the purpose, not the equipment: who will rely on the value and under what conditions the assets would change hands.

• Selling or buying a business: Fair Market Value. The buyer and seller are both willing, both informed, and neither is forced to act. See how business owners work with us.
• Filing a tax return, a gift or an estate matter: Fair Market Value as of a specific date, under the IRS definition. CPAs and tax advisors rely on this premise for their filings.
• Securing a loan or line of credit: Orderly Liquidation Value or Net Orderly Liquidation Value, the value of the collateral if the borrower defaults and the bank sells it in an orderly way. See how we handle lending and collateral appraisals.
• Filing an SBA 7(a) or 504 loan: Orderly Liquidation Value. SBA's SOP 50 10 values used machinery and equipment against net book value or an orderly liquidation appraisal. Some lenders ask for NOLV as well.
• Planning an auction or wind-down: Forced Liquidation Value. The buyer has leverage and the timeline is compressed.
• Scheduling insurance coverage: Replacement Cost New. The question is the cost to make you whole, not what the asset would sell for.
• Litigating a dispute: the premise follows the matter. Litigation appraisals can use any premise; the attorney and appraiser confirm it before the work begins.

If you are not sure, tell us the purpose and we will identify the premise. An appraisal under the wrong premise is accurate and answers the wrong question.

See the full premises-of-value glossary on our process page →