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 is not an opinion of value. It is a guess waiting to be challenged.

What is Fair Market Value (FMV)?

Fair Market Value is the price at which an asset would change hands between a willing buyer and a willing seller, both informed and neither under compulsion, with a reasonable time to market. It assumes the asset stays in its current use and that nobody is forced to act. FMV is the premise behind sales and acquisitions, tax filings, partnership and estate matters, and financial reporting. It is the highest of the common premises because it assumes the most patient, most rational sale.

What are OLV and FLV?

Orderly Liquidation Value and Forced Liquidation Value both assume the seller is exiting, not continuing. The difference is the pressure on the clock.

• 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 because the use changes from going-concern to disposal.
• 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. FLV is the most conservative premise and usually the lowest number, because urgency favors the buyer.

What is Net Orderly Liquidation Value (NOLV)?

Net Orderly Liquidation Value is OLV after the costs of sale are subtracted. Those costs can include removal, rigging, storage, repair, commissions and other expenses required to turn the equipment into cash. NOLV answers the lender's real question: not what the assets might fetch, but what would actually land in the account after the work of selling them. It is the premise that secured lenders and SBA reviewers lean on, because it reflects net recovery rather than gross proceeds.

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 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.

Why does one machine carry several values at once?

Because 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 numbers contradicts the others. They simply describe different futures for the same asset. The job of the appraisal is to identify your situation, select the correct premise, and document the reasoning so the value holds up when someone reads it closely.

That documentation is where defensibility is won or lost. Jesse Lukes came up inside the bank at BMO, originating loans and reviewing collateral, so the file reads the way a lender reads it. Every premise is named, every assumption is stated, and the support is in the report, prepared to withstand lender, SBA, IRS, audit and legal review.

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